A whiter shade of pale
Patents that define ways to make money through commerce on the Internet never have gotten much respect.
In the last year, a series of rulings by the Federal Circuit and the Supreme Court bled much of the remaining color out of the "business method" patents.
A new decision in an old case has now turned them an even whiter shade of pale.
Patent-eligible subject matter
Before we get there, let's review some recent history on the general question of patentable (or patent-eligible) subject matter.
As Blawgletter noted a couple of months ago, under section 101 of the Patent Act:
A patent must do more . . . than link a notion -- however clever -- to a device that carries it out. You need "something 'inventive' that somehow 'transforms' the unpatentable subject matter into something other than a law of nature, natural phenomenon, or abstract idea."
We also explained:
Section 101 of the Patent Act allows patents on "any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof". 35 U.S.C. 101. But, the Supreme Court has held, it does not make laws of nature, natural phenomena, or abstract ideas patentable. Ass'n for Molecular Pathology v. Myriad Genetics, Inc., 133 S. Ct. 2107, 2116 (2013). Those things "are the basic tools of scientific and technological work" and therefore fail section 101's test for patentable subject matter. Gottschalk v. Benson, 409 U.S. 63, 67 (1972).
Then we turned to the big business method patent case that the Supreme Court had decided a few months before, at nearly the end of its 2013-14 Term:
In Alice Corp. Pty. Ltd. v. CLS Bank Int'l, 134 S. Ct. 2347 (2014), the Court declined to adopt a per se rule against patents that involve "business methods", which some people maintained do nothing more than describe patent-ineligible ideas about how to engage in commerce. The Court nonetheless struck down Alice Corp.'s patent on "financial intermediation" as not "inventive" enough to "transform" the concept of having a third-party intermediate a business transaction into something more than an abstract idea. See Blawgletter, June 19, 2014, "You Still Can't Patent Ideas".
buySAFE v. Google
We went on to describe the Federal Circuit's ruling in the first post-Alice Corp. business methods patent case it decided:
In buySAFE, Inc. v. Google, Inc., No. 13-1575 (Fed. Cir. Sept. 3, 2014), the patent owner, buySAFE, accused Google's "Trusted Stores" feature of infringing buySAFE's patent on "Safe transaction guaranty". As the court described it, the patent claimed a method in which
(1) a computer operated by the provider of a safe transaction service receives a request for a performance guarantee for an “online commercial transaction”; (2) the computer processes the request by underwriting the requesting party in order to provide the transaction guarantee service; and (3) the computer offers, via a “computer network,” a transaction guaranty that binds to the transaction upon the closing of the transaction.
buySAFE, slip op. 3.
The patent didn't get beyond an abtract idea, the panel ruled:
The [patent] claims are squarely about creating a contractual relationship—a “transaction performance guaranty”—that is beyond question of ancient lineage. See Willis D. Morgan, The History and Economics of Suretyship, 12 Cornell L.Q. 153 (1927). The dependent claims’ narrowing to particular types of such relationships, themselves familiar, does not change the analysis. This kind of narrowing of such long-familiar commercial transactions does not make the idea non-abstract for section 101 purposes. . . . The claims thus are directed to an abstract idea.
buySAFE, slip op. 9.
Nor did invoking the use of computers or limiting the claims to online transactions supply the necessary transformation of an abstract idea in an inventive way. Such "narrowing has long been held insufficient to save a claim in this context." Id.
The new old case -- Ultramercial, Inc. v. Hulu, LLC, No. 10-1544 (Fed. Cir. Nov. 14, 2014)
Ultramercial describes itself as "a technology company offering patented financial engines for monetizing online content". What does its financial engines do? They allow "users [to] watch our ad to get free content that otherwise would cost money."
Ultramercial sued Hulu -- which calls itself "a premium streaming TV destination" -- for infringing a patent "directed to a method for distributing copyrighted media products over the Internet where the consumer receives a copyrighted media product at no cost in exchange for viewing an advertisement, and the advertiser pays for the copyrighted content." Ultramercial, slip op. at 3.
The district court dismissed Ultramercial's case on the ground that the patent claimed patent-ineligible subject matter. The Federal Circuit reversed the dismissal, but the Supreme Court vacated its ruling. On remand, the court of appeals again reversed, and the Supreme Court again vacated and remanded.
The third time proved the charm for Hulu. This time the panel affirmed the dismissal, holding that under the test of Alice Corp. the Ultramercial patent did nothing more than claim an abstract idea:
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.
Ultramercial, slip op. at 11.
[Curiously, the panel did not mention the decision in buySAFE. The court's mandate in that case issued on October 10. We cannot explain it.]
One of the panel members wrote a stinging concurrence. He summarized his views thus:
I agree that the claims asserted by Ultramercial, Inc. and Ultramercial, LLC (together, “Ultramercial”) are ineligible for a patent, but write separately to emphasize three points. 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. Third, Alice Corporation v. CLS Bank International, 134 S. Ct. 2347, 2356–59 (2014), for all intents and purposes, set out a technological arts test for patent eligibility. Because the purported inventive concept in Ultramercial’s asserted claims is an entrepreneurial rather than a technological one, they fall outside section 101.
Ultramercial, concurring op. at 1.
"Technological arts test"
His development of his last point -- the most interesting one -- warrants full reproduction:
Alice recognized that the patent system does not extend to all products of human ingenuity. 134 S. Ct. at 2358–60; see also [Ass’n for Molecular Pathology v. Myriad [Genetics, Inc., 133 S. Ct. 2107,] 2117 [(2013)] (“Groundbreaking, innovative, or even brilliant discovery does not by itself satisfy the § 101 inquiry.”). Because the system’s objective is to encourage “the onward march of science,” O’Reilly v. Morse, 56 U.S. (15 How.) 62, 113 (1853), its rewards do not flow to ideas—even good ones—outside of the technological arena.
In Alice, the claimed intermediated settlement technique was purportedly new and useful, but the Supreme Court nonetheless unanimously concluded that it fell outside section 101. 134 S. Ct. at 2358–59. The problem was not that the asserted claims disclosed no innovation, but that it was an entrepreneurial rather than a technological one. In effect, Alice articulated a technological arts test for patent eligibility, concluding that the asserted method and system claims were patent ineligible because they did not “improve the functioning of the computer itself” or “effect an improvement in any other technology or technical field.” Id. at 2359; see also id. at 2358 (explaining that the claims in Diamond v. Diehr, 450 U.S. 175, 177–79 (1981) (“Diehr”), were patentable because they disclosed an “improve[ment]” to a “technological process”). In assessing patent eligibility, advances in non-technological disciplines—such as business, law, or the social sciences—simply do not count.
In Bilski[ v. Kappos, 561 U.S. 593 (2010)], the Supreme Court recognized that “business method patents raise special problems in terms of vagueness and suspect validity,” 561 U.S. at 608, but it declined to hold “that business methods are categorically outside of § 101’s scope,” id. at 607. Notably, however, it invited this court to fashion a rule defining a “narrower category” of patent-ineligible claims directed to methods of conducting business. See id. at 608–09 (“[I]f the Court of Appeals were to succeed in defining a narrower category or class of patent applications that claim to instruct how business should be conducted, and then rule that the category is unpatentable because, for instance, it represents an attempt to patent abstract ideas, this conclusion might well be in accord with controlling precedent.”). A rule holding that claims are impermissibly abstract if they are directed to an entrepreneurial objective, such as methods for increasing revenue, minimizing economic risk, or structuring commercial transactions, rather than a technological one, would comport with the guidance provided in both Alice and Bilski.
To satisfy the technological arts test, claims must harness natural laws and scientific principles—those “truth[s] about the natural world that ha[ve] always existed,” Alice, 134 S. Ct. at 2356 (citations and internal quotation marks omitted)—and use them to solve seemingly intractable problems. They must, moreover, not only describe a technological objective, but set out a precise set of instructions for achieving it. An idea is impermissibly “abstract” if it is inchoate—unbounded and still at a nascent stage of development. It can escape the realm of the abstract only through concrete application. Mackay Radio & Tel. Co. v. Radio Corp., 306 U.S. 86, 94 (1939) (“While a scientific truth, or the mathematical expression of it, is not patentable invention, a novel and useful structure created with the aid of knowledge of scientific truth may be.”). This concrete application is new technology—taking a scientific principle or natural law and “tying it down” by implementing it in a precisely defined manner. See Mayo, 132 S. Ct. at 1302 (rejecting claims, in part, because they did “not confine their reach to particular applications”). The claims in Diehr, 450 U.S. at 187, for example, were deemed patent eligible because they provided a clearly delineated set of instructions for carrying out a new technique for curing rubber and their reach was confined to a particular industrial application.
Precise instructions for implementing an idea confine the reach of a patent, ensuring that the scope of the claims is commensurate with their technological disclosure. In assessing patent eligibility, “the underlying functional concern . . . is a relative one: how much future innovation is foreclosed relative to the contribution of the inventor.” Mayo[ Collaborative Services, Inc. v. Prometheus Laboratories, Inc.], 132 S. Ct. [1289,] 1303 [(2012)]; see Motion Picture Patents[ Co. v. Universal Film Mfg. Co.], 243 U.S. [502,] 513 [(1917)] (“[T]he inventor [is entitled to] the exclusive use of just what his inventive genius has discovered. It is all that the statute provides shall be given to him and it is all that he should receive, for it is the fair as well as the statutory measure of his reward for his contribution to the public stock of knowledge.”). At its core, the technological arts test prohibits claims which are “overly broad,” Mayo, 132 S. Ct. at 1301, in proportion to the technological dividends they yield.
Ultramercial, concurring op. at 7-11.
Need for close review
Only the rare business method patent will get through the filter that the Federal Circuit and Supreme Court have fashioned for cases involving what they deem abstract ideas.
If you have a patent that describes a way to do commerce online, make sure you show it to someone who knows how to evaluate it properly. That may save both you and your counsel much expense and even more heartache.