Knapp: Ultramercial III

7/23/2019 Knapp: Ultramercial III

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Ultramercial III : The Federal Circuit’sLong Lesson

TIFFANY MARIE KNAPP*

ABSTRACT

On November 14, 2014, the Federal Circuit held invalid a patentclaiming a method of advertising on the Internet held by Ultramercial, Inc.This was the Court’s third opinion on the matter, the second on remandfrom the Supreme Court. The Court denied rehearing en banc in February2015. The Court’s last disposition finally comported with Supreme Courtprecedent and direction. This Comment argues that the Court madeimportant advances in key areas: namely, upholding a 12(b)(6) dismissalwas a procedural advancement that was proper as a matter of law and will benefit patent law’s fight against meritless and resource-draining claims;recognition of the Internet as a particular technological environment for thepurposes of limiting claims; and suggesting that software may bepresumed patent-ineligible subject matter. However, despite theseadvances, the Ultramercial III opinion creates confusing precedent forpatent holders and lawyers in the Court’s Alice Corp. v. CLS Bank application.

INTRODUCTION

ltramercial had been litigating its ‘545 Patent for five years whenthe Federal Circuit finally found the patent to claim ineligiblesubject matter, and therefore to be invalid.1 The Court, in total,

* Juris Doctor, magna cum laude , New England Law | Boston (2015). B.S., summa cum laude ,

Mathematics and Computer Science, The College of Saint Rose (2012). Thank you to my

parents, my brother, Corey, and my sisters, Melody, Sam, and Ali, for always supporting and

loving me; and to my friends and adoptive family for helping me to grow and making me

laugh, even in the darkest times. I would also like to thank the New England Law Review

associates and editors for their hard work, dedication, and patience, without which this piece

would not exist.1 Ultramercial, Inc. v. Hulu, LLC (Ultramercial III ), 772 F.3d 709, 712 (Fed. Cir. 2014); see

U



724 New England Law Review v. 49 | 723

issued three opinions in the case, twice on remand from the SupremeCourt.2 The Federal Circuit finally ended the patent ’s journey in early 2015when it denied a petition from Ultramercial for en banc review.3

The ‘545 Patent contained a method for distributing copyrightedmaterial over the Internet through which consumers received thecopyrighted content (such as music, books, and TV shows) for free inexchange for watching preselected advertisements, some of whichinvolved interaction from the consumer.4 The advertiser would pay for thecopyrighted content.5 If the method sounds familiar, it is likely because youhave been the consumer, receiving copyrighted content for free onYouTube, Hulu, or WildTangent in exchange for watching advertisements.6 Shortly after its patent application was granted, Ultramercial sued thesepopular websites for patent infringement.7 Ultramercial’s claims werederided as weak, and Ultramercial was called a “patent troll[].”8

After the Federal Circuit, on a motion to dismiss for failure to state a

claim, struck down a district court’s determination that the patent claimedineligible subject matter, the case bounced back and forth between theFederal Circuit and the Supreme Court as the two courts disagreed on themeaning of the abstract ideas exception to patent eligibility.9 In its finaldisposition on the matter, the Federal Circuit comported with Supreme

Daniel Nazer, Victory! Court Finally Throws out Ultramercial’s Infamous Patent on Advertising on

the Internet , ELECTRONIC FRONTIER FOUND. (Nov. 14, 2014), https://www.eff.org/

deeplinks/2014/11/victory-court-finally-throws-out-ultramercials-infamous-patent-

advertising.2 See Nazer, supra note 1.3 Ryan Davis, Fed. Cir. Nixes Ultramercial’s Bid to Review Reach of Alice, LAW360 (Feb. 20,

2015), http://www.law360.com/articles/623568/fed-circ-nixes-ultramercial-s-bid-to-review-

reach-of-alice. Additionally, the Supreme Court recently denied certiorari after Ultramercial

asked for clarification in light of Alice. Ultramercial III , 772 F.3d 709 (Fed. Cir. 2014), cert. denied

135 S. Ct. 2907 (2015).4 Ultramercial III , 772 F.3d at 712.5 Id. 6 See, e.g. , Hulu Advertising , HULU , http://www.hulu.com/advertising/ (last visited Sept. 28,

2015).7 First Amended Complaint for Patent Infringement at 4, 9, 14, Ultramercial, LLC v. Hulu,

LLC, 2010 WL 3360098 (C.D. Cal. 2010) (No. CV09-06918). For example, videos preceding

certain types of content on YouTube would fit under the patent’s claims. See id. at 9.8 See, e.g. , Daniel Nazer, Supreme Court Sends Stupid Software Patent Back to Federal Circuit,

Again , ELECTRONIC FRONTIER FOUND. (Sept. 2, 2014), https://www.eff.org/deeplinks/2014/06/

supreme-court-sends-stupid-software-patent-back-federal-circuit-again (calling Ultramercial’s

patent “stupid” and “idiotic,” as well as noting that patents like this are “the favorite weaponof patent trolls”).

9 See id.




obviousness, and specification.13

At first blush, patentable subject matter appears to be an easyrequirement to meet; however, § 101 jurisprudence has proven difficult to

apply, particularly for technology and software patents.14 In part, this is because software is generally considered a “process” or “method” under §101, despite not being defined in the Patent Act. 15 Process patents are themost contentious type of patent because determining which processes areeligible for protection is a difficult task for courts.16 This is not becausedetermining whether software is a process is difficult—it is not17— butrather because judicially created exceptions to patent eligibility have madehandling successive claims more complex.18 These exceptions—abstractideas, natural laws, and natural phenomena—take an otherwise eligibleclaim and make it patent ineligible.19 To be a patent-eligible process, aclaim must both fall into one of the statutorily outlined categories and notfall into one of the common law exceptions.20

The abstract ideas exception is the most confusing common lawexception.21 Adding to this confusion, there is no definition as to whatmakes a claim “abstract”; rather, patent examiners and courts alike mustrely on comparisons between previously decided claims.22 The doctrine’sroots can be traced to O’Reilly v. Morse , in which the Supreme Court deniedSamuel Morse a claim covering all uses of electromagnetism “however

13 Id. §§ 102, 103, 112.14 See, e.g. , CLS Bank Int’l. v. Alice Corp. Pty. Ltd., 717 F.3d 1269, 1276 (Fed. Cir. 2013)

(Lourie, J., concurring) (“Short and unadorned, § 101 appears deceptively simple on its face,

yet its proper application to computer-implemented inventions and in various other fields of

technology has long vexed this and other courts.”). 15 Andrew Nieh, Software Wars: The Patent Menace , 55 N.Y.L. SCH. L. REV. 295, 303 (2010).16 See Kresh, supra note 11, at 526–29.17 See Mark A. Lemley et al., Life After Bilski, 63 STAN. L. REV. 1315, 1325 (2011) (“These

groupings are categorical—either a claim falls within the statute or it does not.”). 18 See id. at 1325–26 (“It is here that Bilski and its predecessors are the most opaque: each

case purports to grant or deny eligibility to a particular patent claim, but fails to provide

guidance about how to handle the next claim.”). 19 See id. at 1325.20 See id. 21 See generally Brian J. Love, Why Patentable Subject Matter Matters for Software , 81 GEO.

WASH. L. REV. ARGUENDO 1, 6 (2012) (“[T]he boundary between patentable software and

abstraction is hard to define and hard for courts to apply . . . .”). 22 See Alan L. Durham, The Paradox of “Abstract Ideas ,” 2011 UTAH L. REV. 797, 797 (2011);

UNITED STATES PATENT AND TRADEMARK OFFICE , MANUAL OF PATENT EXAMINING PROCEDURE

§ 2106 II.B., available at http://www.uspto.gov/web/offices/pac/mpep/s2106.html (instructing

examiners on subject matter eligibility and the abstract ideas doctrine with comparisons to

Supreme Court cases and claims that have previously been decided to be abstract).



2015 The Federa l Circui t ’ s Long Lesson 727

developed for marking or printing intelligible characters, signs, or letters,at any distances” because it was overbroad and abstract.23 The Court did,however, allow Morse a specific process that utilized electromagnetism for

the specified purpose.24

This was because it would not, contrary to thepurpose of patents as economic incentive for innovation, entirely preemptinvention in the field of electromagnetism, whereas the first claim would.25 The Supreme Court refined this doctrine in later opinions, holding thatwhen a patent would monopolize or preempt all uses of a particular idea,the claim is too abstract to be patent-eligible.26 Further, post-solutionactivity (activity taking place after a process is conducted, such as using analgorithm’s calculations27) cannot make an abstract idea patentable.28 However, a claim that contains an abstract idea is not, by default, patent-ineligible: when the claim is sufficiently tied to a particular application ofthe abstract idea or formula, it may be patented.29

B. Alice Corp. v. CLS Bank Int’l

In the past ten years the Supreme Court has taken a substantiallyincreased interest in patentable subject matter.30 The most recent result of

23 See O’Reilly v. Morse, 56 U.S. 62, 112 (1853). 24 See id.25 Id.26 See, e.g. , Gottschalk v. Benson, 409 U.S. 63, 71–72 (1972) (finding that the patent would

preempt all possible uses of the formula because the only application of a conversion formula

for binary numbers was for computers).27 See Parker v. Flook, 437 U.S. 584, 590 (1978) (explaining that if post-solution activity were

able to transform an abstract idea into patentable subject matter, the Pythagorean theorem

could have been made patentable merely by adding a single “final step indicating that theformula, when solved, could be usefully applied to existing surveying techn iques”).

28 Mayo Collaborative Servs. v. Prometheus Labs., Inc., 132 S. Ct. 1289, 1299 (2012) (quoting

Parker , 437 U.S. at 589–90) (“‘[P]ost solution activity’ that is purely ‘conventional or obvious,’ .

. . ‘can[not] transform an unpatentable principle into a patentable process.’”); Parker , 437 U.S.

at 590 (finding post-solution activity of updating an alarm unit using the value obtained from

the formula was insufficient to make the process patentable).29 Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 134 S. Ct. 2347, 2354 (2014) (“[A]n invention is not

rendered ineligible for patent simply because it involves an abstract concept. Applications of

such concepts to a new and useful end, we have said, remain eligible for patent protection.”)

(internal citations and quotations omitted); see Mayo Collaborative Servs. , 132 S. Ct. at 1299

(discussing the other steps in Diamond v. Diehr as “transform[ing] the process into an

inventive application of the formula” and noting the patentees did not seek to preclude all

possible uses of the equation, but only in conjunction with all other steps of the claim) (emphasis

added).30 See Timothy R. Holbrook, Explaining the Supreme Court’s Interest in Patent Law , 3 IP

THEORY 62, 63–64 (2013), available at http://www.repository.law.indiana.edu/cgi/viewcontent




this interest was Alice Corp.31 A number of patents that “disclose[d] acomputer-implemented scheme for mitigating ‘settlement risk’” were atissue.32 Essentially, the claims related to using a computer as an

intermediary in financial exchanges to ensure both parties to a transactionsatisfy their obligations.33 Though only the claims to the computer systemprogrammed to carry out the method and computer-readable mediumcontaining program code which performed the method specifically reciteda computer, it was stipulated that the method claim itself also required acomputer.34

The District Court held that all of the claims were patent-ineligible because they were directed to an abstract idea, namely “employing aneutral intermediary to facilitate simultaneous exchange of obligations inorder to minimize risk.”35 First, a divided panel of the Federal Circuitreversed this decision.36 Subsequently, upon rehearing en banc , the FederalCircuit issued over 100 pages of concurring and dissenting opinions, only

one paragraph of which had precedential effect and upheld the DistrictCourt’s determination.37

The Supreme Court stepped in to clarify the Federal Circuit’s apparentconfusion over subject matter eligibility and the abstract ideas exception,ruling that adding a computer to a claim is insufficient to confer patenteligibility to a patent drawn to an abstract concept.38 In making thisdecision, the Court merely discussed its own precedent—namely MayoCollaborative Services v. Prometheus Laboratories, Inc.39 No new law wasconsidered.40 The Court applied a two-part test, drawn from its previousdecision in Mayo , to determine whether the patent was eligible.41 First, the

.cgi?article=1020&context=ipt.

31 See generally Alice Corp. , 134 S. Ct. 2347.32 Id. at 2351.33 Id. at 2352.34 Id. at 2353.35 Id. at 2353 (quoting CLS Bank Int’l v. Alice Corp. Pty. Ltd., 768 F. Supp. 2d 221, 252

(D.D.C. 2011)).36 Id. 37 Alice Corp. , 134 S. Ct. at 2353.38 Id. at 2358 (quoting Mayo Collaborative Servs. v. Prometheus Laboratories, Inc., 132 S.

Ct. 1289, 1301 (2012)).39 See id. at 2357–60.40 See id. at 2357–60; Elizabeth Mulkey, Alice Corp. v. CLS Bank: No Surprises, Some

Guidance , JETLAW (June 24, 2014), http://www.jetlaw.org/2014/06/24/alice-corp-v-cls-bank-no-

surprises-some-guidance/ (explaining that the Alice Corp. decision “follow[ed] naturally fromthe Court’s precedent”).

41 Alice Corp. , 134 S. Ct. at 2355.




Court determined whether the claims were directed to ineligible subjectmatter (e.g., a natural law, abstract idea, or natural phenomena).42 If theclaims are not directed to such matter, they pass § 101 scrutiny. 43 However,

if the claims are directed towards ineligible subject matter, the Court mustdetermine whether the claims contain enough to amount to “significantlymore than a patent upon the [ineligible concept] itself.”44

In Mayo , the Court held a patent invalid for failing to claim eligiblesubject matter because it lacked an “inventive concept” and for“preemption” reasons: the patent claims were not adding enough to theunderlying natural law to confer eligibility and, because of this, grantingthe claims would threaten to tie up use of the law for further innovation.45 The Alice Corp. opinion, largely considered to have not given the expectedinstruction on the abstract ideas doctrine,46 merely extended this pre-existing doctrine to claims with computers attached to them.47

C. Patent Trolls and Patent Abuse

A recent policy concern of Congress, the Supreme Court, and people inthe technology sector has been “patent trolls,” or “Non-Practicing Entities” (“NPEs”).48 NPEs are “parties who own and sometimes assert patents butdo not practice the technology covered by their patents”—they do notproduce the item or otherwise actually use the technology.49 The number of

42 Id. at 2355. 43 See id. (describing the Mayo framework as separating those that claim abstract concepts

from those which claim patent-eligible subject matter).44 Id. (quoting Mayo Collaborative Servs. v. Prometheus Laboratories, Inc., 132 S.Ct. 1289,

1294 (2012)).45

Mayo Collaborative Servs. , 132 S. Ct. at 1294.46 See Mulkey, supra note 40 (explaining that the Alice Corp. decision “follow[ed] naturally

from the Court’s precedent”); Daniel Nazer & Vera Ranieri, Bad Day for Bad Patents: Supreme

Court Unanimously Strikes Down Abstract Software Patent , ELECTRONIC FRONTIER FOUND. (June

19, 2014), https://www.eff.org/deeplinks/2014/06/bad-day-bad-patents-supreme-court-

unanimously-strikes-down-abstract-software (noting that the Alice Corp. opinion left “many

details to be worked out,” including “the scope of an ‘abstract idea,’” and that the opinion did

not offer much guidance on when patents claim abstract ideas).47 See Alice Corp. , 134 S. Ct. at 2355–60 (laying out the Mayo framework and applying it

without the addition of new principles of law—except the application to computers).48 See, e.g. , Leahy-Smith America Invents Act, Pub. L. No. 112-29, § 34, 125 Stat. 284, 340

(2011) (directing the GAO to “conduct a study of the consequences of litigation by non -

practicing entities”); Ultramercial III , 772 F.3d at 719 (Mayer, J., concurring) (explaining that

resolving subject matter inquiries at the start of litigation helps prevent “meritless

infringement claims”). 49 James Bessen & Michael J. Meurer, The Direct Costs from NPE Disputes , 99 CORNELL L.

REV. 387, 388 (2014).




entities defending themselves from litigation by NPEs has seen sharpgrowth.50 A recent study determined that the aggregate, accrued, directcosts of NPE patent assertions was $29 billion in 2011.51 This figure does

not include indirect costs, such as diversion of various resources within a business to accommodate litigation, product delays, revenue loss, etc.52 Thestudy suggests that, should indirect costs be included, the actual businesscosts would be twice the direct costs.53

This concern is particularly appropriate for software patents—from2010 to 2011 the number of patent infringement lawsuits increased by onethird, and between 2007 and 2011 the number of defendants in patent suitsincreased by 129 percent—defendants in software-related suits accountingfor 89 percent of this increase.54 Software patents are particularly at risk forexploitation because the nature of software causes patents to claimconcepts rather than specific ideas or “tangible creations”; meaning theyare easier to apply to a broader swath of activity and, therefore,

defendants.55

NPEs are more likely than “operating companies” to assertsoftware-related patents.56

A number of proposals have been put forth to address this problem.57 They range from amending the patent system itself, particularly withrespect to software patents, to make it harder for NPEs to abuse,58 to judicial and procedural responses,59 to legislation.60

50 Id. at 391.51 Id. at 408.52 Id. at 409.53 Id. 54 GOV’T ACCOUNTABILITY OFFICE , INTELLECTUAL PROPERTY: ASSESSING FACTORS THAT

AFFECT PATENT INFRINGEMENT LITIGATION COULD HELP IMPROVE PATENT QUALITY 14 (2013),

available at http://www.gao.gov/assets/660/657103.pdf.55 See Charles Duhigg & Steve Lohr, The Patent, Used as a Sword , N.Y. TIMES (Oct. 7, 2012),

http://www.nytimes.com/2012/10/08/technology/patent-wars-among-tech-giants-can-stifle-

competition.html.56 RPX CORP., THE PREVALENCE OF SOFTWARE PATENT ASSERTION 1 (2014), available at

http://www.rpxcorp.com/wp-content/uploads/2014/01/RPXAnalysisThePrevalenceofSoftware

PatentAssertion.pdf.57 See infra notes 58–60. 58 See, e.g. , ADI KAMDAR , DANIEL NAZER & VERA RANIERI , ELECTRONIC FRONTIER

FOUNDATION , DEFEND INNOVATION: HOW TO FIX OUR BROKEN PATENT SYSTEM 3 (2015),

available at https://www.eff.org/files/2015/02/24/eff-defend-innovation_0.pdf.59 See, e.g. , Brief of Amicus Curiae Electronic Frontier Foundation in Support of Petitioner at

12, Wildtangent, Inc. v. Ultramercial, LLC et al. (2013) (No. 13-255), available athttps://www.eff.org/files/2013/10/08/eff-cert-petition-amicus2-wildtangent-ultramercial_1.pdf.

60 See, e.g. , Leahy-Smith America Invents Act, Pub. L. No. 112-29, § 34, 125 Stat. 284, 340




II. Ultramercial, Inc. v. Hulu, LLC

A. The Patent and Procedural History

Ultramercial was granted U.S. Patent No. 7,346,545 (“the ‘545 Patent”)on March 18, 2008, claiming a method for distributing copyrighted materialover the Internet, using advertising to pay for the intellectual propertyrights.61 Ultramercial subsequently filed suit against YouTube, Hulu, andWildTangent for patent infringement.62 The District Court found that theclaims were not drawn to patentable subject matter, failed the machine-or-transformation test,63 and, following the Mayo decision, that itimpermissibly preempted use of an abstract idea, namely advertising as aform of currency.64 The Federal Circuit reversed on its first hearing of thecase, reasoning that the claim was “not so manifestly abstract” to warrant afinding of ineligibility because the patent disclosed a practical applicationof the abstract idea.65 The Court particularly focused on the likelihood that

the steps would “require intricate and complex computer programming” and “clearly require[d] specific application to the Internet and a cyber-market environment.”66 The Supreme Court subsequently vacated andremanded the case back to the Federal Circuit for rehearing in light of Mayo.67

The Federal Circuit again upheld the patent’s eligibility, determining it

(2011) (directing the GAO to “conduct a study of the consequences of litigation by non-

practicing entities”). 61 U.S. Patent No. 7,346,545 (filed May 29, 2001).62 First Amended Complaint for Patent Infringement & Demand for Jury Trial at 1,

Ultramercial, LLC v. Hulu, LLC, 2010 WL 3360098 (C.D. Cal. 2009) (No. CV09-06918).63

See In re Bilski, 545 F.3d 943, 963 (Fed. Cir. 2008). The machine-or-transformation test is atest created by the Federal Circuit to determine whether or not a process is patent-eligible:

unless a process is tied to a particular machine or transforms an article, it is not patent-eligible.

Id. at 954. Subsequently, the Supreme Court has clarified that the test cannot be used as the

sole determiner of patent eligibility; instead, it is a “useful and important clue.” Bilski v.

Kappos, 561 U.S. 593, 604 (2010). Despite this cautioning, the Federal Circuit continues to use

passing the machine-or-transformation test as a starting point to determining eligibility, if not

itself determinative of patent eligibility. See, e.g. , Ultramercial III , 772 F.3d 709, 716–17 (Fed. Cir.

2014). For more information about this test, see generally Lemley et al., supra note 17.64 Ultramercial, LLC v. Hulu, LLC, No. CV 09-06918 RGK, 2010 WL 3360098, at *2 (C.D.

Cal. Aug. 13, 2010), rev'd , 657 F.3d 1323 (Fed. Cir. 2011), cert. granted, vacated sub nom.

WildTangent, Inc. v. Ultramercial, LLC, 132 S. Ct. 2431 (2012).65 Ultramercial, LLC v. Hulu, LLC (Ultramercial I ), 657 F.3d 1323, 1330 (Fed. Cir. 2011), cert.

granted , vacated sub nom. WildTangent, Inc. v. Ultramercial, LLC, 132 S. Ct. 2431 (2012)

(quoting Research Corp. v. Microsoft Corp., 627 F.3d 859, 869 (Fed. Cir. 2010)).66 Id. at 1328.67 WildTangent, Inc. v. Ultramercial, LLC, 134 S. Ct. 2870, 2870 (2014).




was not abstract for essentially the same reasoning given in its vacatedopinion—the patent was meaningfully limited by its implementation on“the Internet,” likely required programming to execute, and was a specific

application of the abstract idea.68

Wildtangent again filed for certiorari,which was granted.69 The Supreme Court again did not issue an opinion inthis case but ruled in another case instead: Alice Corp. v. CLS Bank Int’l.70 The Court vacated and remanded to the Federal Circuit for rehearing.71 Due to the nature of the Alice Corp. opinion, this order essentiallyamounted to reconsideration in light of Mayo with direct instructions thatperforming a process “on a computer” is insufficient to make a claimpatent eligible.72

B. Ultramercial III

Finally, upon the third hearing, the Federal Circuit invalidatedUltramercial’s patent, finding that it was drawn to ineligible subject

matter.73 The Court applied the Supreme Court’s two-part test from AliceCorp. to determine that the claims were not directed to patentable subjectmatter.74 The Federal Circuit began by agreeing with the District Court ’sformulation of the abstract idea at the heart of the patent: “that one can use[an] advertisement as an exchange or currency.”75 This was what they haddone in the previous two opinions.76 The Court then stated outright thatthe claim is an “abstraction,” defined as “an idea, having no particularconcrete or tangible form.”77 It also stated that particular aspects of theclaim (such as allowing the consumer to access media and receivingpayment from the sponsor of the advertisement) “all describe an abstract

68 Ultramercial, Inc. v. Hulu, LLC (Ultramercial II ), 722 F.3d 1335, 1350 (Fed. Cir. 2013),

vacated and remanded , 134 S. Ct. 2870 (2014).69 See WildTangent , 134 S. Ct. at 2870.70 See id.; Alice Corp. Pty. Ltd. v. CLS Bank Int’l , 134 S. Ct. 2347, 2360 (2014); see generally

Part I.B (discussing the Alice Corp. decision).71 WildTangent , 134 S. Ct. at 2870.72 See id.; see also Nazer & Ranieri, supra note 46 (discussing the Supreme Court’s decision in

Alice Corp. and how “the Court ruled that adding ‘on a computer’ to an abstract idea does not

make it patentable”).73 Ultramercial III , 772 F.3d at 712.74 Id. at 713–14.75 Id. at 714.76 Compare Ultramercial I , 657 F.3d 1323, 1328 (Fed. Cir. 2014), vacated 132 S. Ct. 2431 (2012),

and Ultramercial II , 722 F.3d 1335, 1349 (Fed. Cir. 2013), vacated 134 S. Ct. 2870 (2014), withUltramercial III , 772 F.3d at 714.

77 Ultramercial III , 772 F.3d at 714–15.




idea, devoid of a concrete or tangible application.”78 The Court did not delvemuch further into analyzing whether the claims were drawn to an abstractidea; the Court merely noted that the claims were not saved by the

additional activity they claimed.79

Perhaps most interestingly, the Courtnoted that “we do not purport to state that all claims in all software-based patents will necessarily be directed to an abstract idea. Future cases may turnout differently.”80

The Court then considered whether additional steps or limitationssufficiently transformed the abstract idea in order to qualify the claim aspatent-eligible.81 The Court answered this in the negative: the recited stepsstated only the abstract idea, were conventional and routine, someconstituted “data gathering” and were therefore insignificant, and otherswere only pre-solution activity.82 The Court, however, did not explain what made these steps conventional, data gathering, or pre-solution activity.83 Itis, though, a departure from considering programming as a particular

application.84

The Court noted that invoking the Internet did not save theclaims—implementation of an abstract idea in a new environment does notmake an otherwise abstract concept patentable, and the Internet is anenvironment.85 The Court also noted that the claims failed under themachine-or-transformation test.86

C. Judge Mayer’s Concurrence

Judge Mayer, known as the “most anti-patent Judge on the FederalCircuit,”87 wrote separately to outline several principles that were notrepresented in the majority opinion.88 First, whether a claim meets § 101 ’sdemands is a threshold question to be addressed at the outset of

78 Id. 79 Id. at 715.80 Id. 81 Id.; see also Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 134 S. Ct. 2347, 2355 (2014). 82 Ultramercial III , 772 F.3d at 715–16.83 Id. 84 Compare Ultramercial I , 657 F.3d 1323, 1328–30 (Fed. Cir. 2011), vacated , 132 S. Ct. 2431

(2012), and Ultramercial II , 722 F.3d 1335, 1349–54 (Fed. Cir. 2013), vacated , 134 S. Ct. 2870

(2014), with Ultramercial III , 772 F.3d at 715–16.85 Ultramercial III , 772 F.3d at 716.86 Id. at 716–17.87 Gene Quinn, Federal Circuit Finds Software Patent Claim Patent Eligible , IPWATCHDOG (Dec.

5, 2014), http://www.ipwatchdog.com/2014/12/05/federal-circuit-finds-software-patent-claim-patent-eligible/id=52510/.

88 Ultramercial III , 772 F.3d at 717 (Mayer, J., concurring).




litigation.89 Second, no presumption of patent eligibility should accompanya § 101 inquiry.90 Finally, Judge Mayer read Alice Corp. as creating a cleardividing line between “entrepreneurial” and “technological” claims,

placing purely “entrepreneurial” claims outside § 101 subject matter.91

ANALYSIS

III. The Federal Circuit— Finally—Gets (Some of) It Right

A. 12(b)(6) Dismissal Was Proper— And Is Good for Patent Law

A major procedural advancement that came from Ultramercial III wasthat the Federal Circuit affirmed a grant of a motion to dismiss for failureto state a claim.92 Whether conscious or not, the Federal Circuit opened thedoor to early-stage dismissal of patent suits.93 Though not previouslyunheard of, this decision is a firm indication that such motions are accepted

by the court and are therefore a practical tactical move.94

This was a propermove by the Federal Circuit and is good for the future of patent law.95

1. 12(b)(6) Dismissal Is Appropriate for Patent Cases as aMatter of Law

First, this was proper as a matter of law under Federal Rule of CivilProcedure 12(b)(6) because the ‘545 Patent was very clearly not drawn topatent-eligible subject matter as outlined by Supreme Court precedent—

89 Id. 90

Id. 91 Id. at 717, 721–22.92 See id. at 711–12 (majority opinion); see also Ultramercial, LLC v. Hulu, LLC, No. CV 09-

06918 RGK, 2010 WL 3360098, at *2 (C.D. Cal. Aug. 13, 2010), rev'd , 657 F.3d 1323 (Fed. Cir.

2011), cert. granted, vacated sub nom. WildTangent, Inc. v. Ultramercial, LLC, 132 S. Ct. 2431

(2012) (discussing the judicial standard under Federal Rule of Civil Procedure 12(b)(6), motion

to dismiss for failure to state a claim upon which relief can be granted).93 See MARK A. WILLARD , U LTRAMERCIAL V . H ULU : EARLY DISMISSAL OF BUSINESS METHOD

PATENT INFRINGEMENT CASES UNDER RULE 12(B)(6) 1–2, available at

http://www.eckertseamans.com/uploads/publications/DISMISSALOFPATENTCASES%28J190

2949%29.pdf (describing dismissal of infringement actions pursuant to Rule 12(b)(6) as

“newly sanctioned” by Ultramercial III ).94 See Kenneth G. Parker & David W. O’Brien, Federal Circuit Strikes Down Business Method

Patent Based on Early-State Motion to Dismiss , HAYNESBOONE (Nov. 17, 2014),

http://www.haynesboone.com/news-and-events/news/alerts/2014/11/17/federal-circuit-strikes-down-business-method-patent-based-on-early-stage-motion-to-dismiss.

95 See, e.g. , WILLARD , supra note 93, at 2.




even before the Alice Corp. decision.96 A 12(b)(6) motion to dismiss isproperly granted if, when viewing the complaint in the light mostfavorable to the nonmoving party, the “complaint lacks a cognizable legal

theory or sufficient facts to support a cognizable legal theory.”97

In patentinfringement cases, there can be no legal basis for a claim of infringementwithout a valid patent; stated differently, it is necessary in an infringementaction to have a valid patent to base a claim upon.98 Therefore, adetermination of the patent’s validity at the motion to dismiss stage makessense: there is no legal basis to proceed absent a valid patent.99 Further, theSupreme Court has stated that subject matter eligibility is a threshold requirement—meaning it is necessary to determine that the patent issubject-matter eligible before any other determinations related to the patentcan be made, including patentability requirements.100

Some have argued that dismissal at such an early stage is improper —most significantly the Federal Circuit in Ultramercial II —due to procedural

concerns regarding the sufficiency of factual development early in a caseand concerns with upsetting the presumption of validity whichaccompanies issued patents.101 The concern with a lack of factualdevelopment is that, while the determination of whether a particularpatent claim is subject-matter eligible is a question of law, judges oftenneed to rely on underlying factual development to reach their legalconclusions.102 With only the pleadings before them at the 12(b)(6) stage, judges have little information regarding whether a particular claim isdrawn to more than what was “routine” or “conventional” in the field andother eligibility issues.103 Second, once patents are issued by the UnitedStates Patent and Trademark Office (“USPTO”), they are presumed valid

96 See, e.g. , Brief of Amicus Curiae Electronic Frontier Foundation In Support of Petitioner at

15–19, Wildtangent, Inc. v. Ultramercial, LLC, No. 13-255 (2013), available at

https://www.eff.org/files/eff-cert-petition-amicus2-wildtangent-ultramercial.pdf.97 Ultramercial III , 772 F.3d 709, 711–12 (Fed. Cir. 2014); Ultramercial, LLC v. Hulu, LLC,

No. CV 09-06918 RGK, 2010 WL 3360098, at *2 (C.D. Cal. Aug. 13, 2010), rev'd , 657 F.3d 1323

(Fed. Cir. 2011), cert. granted, vacated sub nom. WildTangent, Inc. v. Ultramercial, LLC, 132 S.

Ct. 2431 (2012).98 See 2 GREGORY E. UPCHURCH , IP LITIGATION GUIDE: PATENTS & TRADE SECRETS § 14:1

(2014) (noting that proof of infringement requires comparing claims of the patent to the

infringing device).99 See id. Without a valid patent, an infringement action cannot proceed—there are no

claims to compare to an allegedly infringing device. See id. 100 See Bilski v. Kappos, 561 U.S. 593, 602 (2010).

101 Ultramercial II , 722 F.3d 1335, 1338–39 (Fed. Cir. 2013).102 Id. at 1339.103 Id.




unless proven invalid by clear and convincing evidence.104 The assertion isthat dismissal on a 12(b)(6) motion should be rare because the only possibleway the defense can be successful is if “the only plausible reading of the

patent [is] that there is clear and convincing evidence of ineligibility.”105

However, neither argument is entirely correct, nor do they deny

availability of motions to dismiss.106 First, the Supreme Court in Alice Corp.did not require underlying facts to determine that the claims wereineligible; rather, the Court looked to the language of the claims both todetermine the presence of an abstract idea and to determine that there wasno inventive concept added to the idea to make it patent-eligible.107 Ifunderlying facts are required, all a judge needs to do is deny the motion. 108 Additionally, Judge Mayer’s concurrence in Ultramercial III explained that because the USPTO “applied an insufficiently rigorous subject mattereligibility standard,” no presumption of validity for patents should attendthe § 101 analysis.109 According to the Supreme Court, the rationale behind

the presumption of validity for patents is “much diminished” when theUSPTO has not properly considered an issue.110 For years, the USPTO hasgranted patents that would—post- Mayo , Alice Corp. , and others—neverhave been deemed subject-matter eligible.111 Further, the Supreme Court

104 Id. at 1338.105 Id. at 1339.106 See infra notes 107–12 and accompanying text.107 Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 134 S. Ct. 2347, 2356–57, 2359–60 (2014).108 See, e.g. , Genetic Techs. Ltd. v. GlaxoSmithKline, LLC, 2014 U.S. Dist. LEXIS 156473

(M.D.N.C. Aug 22, 2014) (declining to grant a motion to dismiss because “careful [claim]

construction will be facilitated by a broader and more developed factual context.); see also Courtney Quish, Michael Renaud, Matthew Karambelas & Sean Casey, Patentability of Software

Post-Alice: How Do Courts Determine Whether an Idea is Abstract? , MINTZ LEVIN (Jan. 12, 2015),

http://www.mintz.com/newsletter/2015/Advisories/4561-0115-NAT-IP/ (stating that, since

Alice Corp. , seven of seventy-two cases “were deferred for a later decision after a claim

construction or more facts develop.”). 109 Ultramercial III , 772 F.3d 709, 720 (Fed. Cir. 2014).110 KSR Int’l Co. v. Teleflex Inc., 550 U.S. 398, 426 (2007); Ultramercial III , 772 F.3d at 720.111 See Peggy Focarino, Guidance on Subject Matter Eligibility Issued , USPTO (Dec. 15, 2014),

http://www.uspto.gov/blog/director/entry/guidance_on_subject_matter_eligibility (“[T]he

[2014 Interim Eligibility Guidance] reflects a significant change from the examination guidance

previously issued in response to Myriad and Mayo. The changes were triggered by the

feedback we solicited and received from the public, as well as refinements necessitated by the

Alice Corp. decision.”) (emphasis added); Peter Root & Nisha Agarwal, The Supreme Court’s

Part in Patent Reform, Post-AIA , INSIDE COUNSEL (Jan. 5, 2015),

http://www.insidecounsel.com/2015/01/05/the-supreme-courts-part-in-patent-reform-post-aia

(discussing the Supreme Court’s trend of tightening subject-matter eligibility).




has never applied a presumption of eligibility to validly granted patentswhen applying and analyzing § 101.112

2. 12(b)(6) Dismissal Is Appropriate for Patent Cases as aMatter of Policy

As a matter of policy, granting early dismissal of patent cases allowscourts to dispose of cases that drain limited resources and frees litigantsfrom meritless claims.113 Ultramercial is the perfect example—this case waslitigated for over five years.114 Had the initial 12(b)(6) dismissal stood, thiscase would not have drained four more years of judicial resources —including the resources of our highest court, twice.115 Allowing a motion todismiss or summary judgment removes costly discovery, trials, claimconstruction, briefing, etc., for patents that do not provide a sufficient basisto justify suit in the first place.116

12(b)(6) dismissal is an efficient method for disposing of superfluous

cases from NPEs.117 This creates “downside risk” for NPEs by underminingtheir business model—making money through licensing or settlement dueto the threat of litigation costs.118 By creating a method for defendants toget out of court sooner, and thereby reducing litigation costs, NPEs aredisincentivized from continuing these practices.119 Therefore, 12(b)(6)motions early or summary judgment motions concerning invalidity areeffective means to combat this problem.120

B. Recognition of the Internet as a Technological Environment

The Federal Circuit was correct to recognize that the Internet is a“particular technological environment,” and that limiting use of an abstractidea to the Internet is insufficient to confer patent eligibility. 121 This

recognition was a huge departure from the Court’s previous two

112 Ultramercial III , 772 F.3d at 720–21.113 See WILLARD , supra note 93.114 See Nazer, supra note 1. The Federal Circuit finally ended this dispute on February 20,

2015. Davis, supra note 3.115 See Nazer, supra note 1.116 See WILLARD , supra note 93, at 2.117 See Scott Doyle, Courts Hold the Keys to Curbing NPE Litigation , LAW360 (June 7, 2013,

12:09 PM), http://www.law360.com/articles/448282/courts-hold-the-keys-to-curbing-

npe-litigation; WILLARD , supra note 93, at 2.118 See Doyle, supra note 117.

119 Id. 120 Id. 121 Ultramercial III , 772 F.3d 709, 716 (Fed. Cir. 2014).




decisions.122 Initially, the Federal Circuit viewed implementation over theInternet as a particular application of the abstract idea that the claims weredrawn to.123 Additionally, the Court saw the possibility or suggestion that

the claims would require “complex computer programing” to implementas sufficient to make the claims patent eligible.124

However, the most recent ruling is more in-line with both SupremeCourt precedent, even before the more immediate direction of Alice Corp. ,and Federal Circuit precedent.125 The Supreme Court recognized that anabstract idea cannot merely be limited to a particular technologicalenvironment in order to obtain patent protection when setting forth the“inventive concept” notion in Mayo— before Alice Corp.126 This concept wasclearly restated in Alice Corp. , using language the Federal Circuit had at itsdisposal when writing the second Ultramercial opinion: “Flook stands forthe proposition that the prohibition against patenting abstract ideas cannot be circumvented by attempting to limit the use of [the idea] to a particular

technological environment.”127

The Federal Circuit had also, pre-Ultramercial , suggested that adding the Internet to an otherwise abstractclaim would not confer eligibility.128 The Court confirmed this suggestionin Ultramercial III , when it cited to the CyberSource decision as precedent forthe rule that the Internet cannot “save otherwise abstract claims fromineligibility under § 101.”129 Shortly after Ultramercial II , the Federal Circuitalso stated in Accenture that “simply implementing an abstract concept on acomputer, without meaningful limitations to that concept, does nottransform a patent-ineligible claim into a patent-eligible one.”130 This was,

122 Compare Ultramercial I , 657 F.3d 1323, 1328 (Fed. Cir. 2011) cert. granted , vacated sub nom.

WildTangent, Inc. v. Ultramercial, LLC, 132 S. Ct. 2431 (2012) (explaining that the patent was

not abstract because it disclosed a “specific application to the Internet”) , and Ultramercial II,

722 F.3d 1335, 1349–51 (Fed. Cir. 2013) (reasoning that because the patent claimed particular

implementation over the Internet and on a computer, it was subject-matter eligible), with

Ultramercial III , 772 F.3d 709, 716 (Fed. Cir. 2014).123 Ultramercial I , 657 F.3d at 1328.124 See Ultramercial II , 722 F.3d at 1350.125 See infra notes 126–37 and accompanying text.126 Mayo Collaborative Servs. v. Prometheus Labs., Inc., 132 S. Ct. 1289, 1294 (2012) (citing

Bilski v. Kappos, 561 U.S. 593, 610–11 (2010)).127 Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 134 S. Ct. 2347, 2358 (2014) (internal quotations

omitted) (quoting Bilski v. Kappos, 561 U.S. 593, 610–11 (2010)).128 See CyberSource Corp. v. Retail Decisions, Inc., 654 F.3d 1366, 1370 (Fed. Cir. 2011)

(explaining that the claim’s use of the Internet did not tie the claim to a machine for purposes

of the machine-or-transformation test); Ultramercial III , 772 F.3d 709, 716 (Fed. Cir. 2014).129 Ultramercial III , 772 F.3d at 716.130 Accenture Global Servs., GMBH v. Guidewire Software, Inc., 728 F.3d 1336, 1345 (Fed




in part, because it is a limitation to a particular field of use.131

The Ultramercial III ruling, by stating that the invocation of the Internetin a patent claim does not add an inventive concept, is therefore more in

line with the existing Supreme Court and Federal Circuit precedents thanUltramercial II was.132 The Internet, in software engineering, can be viewedas a specific technological environment.133 Software development for theInternet differs from “ordinary” software development due to the differenttechnological environment the Internet presents.134 As such, limitation ofUltramercial’s claim to “the Internet” is nothing more than a limitation to aparticular environment and is therefore an insufficient basis to support afinding of eligibility under preexisting Supreme Court precedent. 135 Additionally, under the Federal Circuit’s precedent before Ultramercial , theInternet cannot save the claims and make them eligible.136 Therefore, theFederal Circuit was correct to reverse itself in this area and bring theUltramercial case within both the Supreme Court’s precedent and its own.137

C. Software May Be Ineligible Subject Matter

In what would be a dramatic departure from its previous precedent,the Federal Circuit seemed to imply within the Ultramercial III opinion thatsoftware was de facto ineligible for patent protection.138 The statement, “wedo not purport to state that all claims in all software-based patents willnecessarily be directed to an abstract idea. Future cases may turn outdifferently,” implies that patent-eligible software would be the exception,not the rule.139 Between the Alice Corp. decision and mid-July 2015, theFederal Circuit has only upheld one software-based patent, furthersuggesting it views software-claim eligibility as the exception, not the

Cir. 2013).131 Id. 132 See infra notes 133–37.133 See, e.g. , GARY MARRER , FUNDAMENTALS OF PROGRAMMING: WITH OBJECT ORIENTED

PROGRAMMING 353–55 (2009) (explaining differences between internet programming and

traditional programming).134 See, e.g., id.135 See Bilski v. Kappos, 561 U.S. 593, 610–11 (2010).136 See supra notes 128–31 and accompanying text.137 See supra notes 126–35 and accompanying text.138 See Robert R. Sachs, The Day the Exception Swallowed the Rule: Is Any Software Patent

Eligible After Ultramercial III? , BILSKIBLOG (Dec. 2, 2014), http://www.bilskiblog.com/blog/

2014/12/the-day-the-exception-swallowed-the-rule-is-any-software-patent-eligible-after-ultramercial-iii.html.

139 Ultramercial III , 772 F.3d 709, 715 (Fed. Cir. 2014); Sachs, supra note 138.




rule.140 While an unpopular view,141 holding that software patents are,without something more, categorically ineligible is good for patent law andconsistent with § 101 jurisprudence.142

Primarily, software should not be considered patentable subject matterunder the Patent Act—therefore, a presumption against granting a patentfor a software-based claim is proper.143 One of the primary reasons assertedfor excluding software from being patentable subject matter is that it is,essentially, math.144 The Supreme Court concluded that mathematicalalgorithms cannot be patented.145 No matter how a method patent claimingsoftware is implemented, it requires coding.146 This code is, fundamentally,mathematics.147 Granting method patents that require coding preempts the

140 See Robert Sachs, #Alicestorm: July is Hot, Hot, Hot . . . and Versata is Not, Not, Not ,

JDSUPRA BUS. ADVISOR (July 14, 2015), http://www.jdsupra.com/legalnews/alicestorm-july-is-

hot-hot-hot-and-14362/ (showing in a table that the Federal Circuit has issued one opinion

upholding one patent since the Alice Corp. decision issued). The Court upheld the patent atissue in DDR Holdings LLC v. Hotels.com, L.P. , a software-based patent. DDR Holdings, LLC v.

Hotels.com, L.P., 773 F.3d 1245, 1248 (Fed. Cir. 2014).141 See, e.g. , Raymond Millien & Christopher George, The Patentability of Software: Myths,

Facts and a Proposed Test , IPWATCHDOG (May 28, 2014), http://www.ipwatchdog.com/

2014/05/28/the-patentability-of-software-myths-facts-and-a-proposed-test/id=49792/.142 See Patent Fail: In Defense of Innovation , ELECTRONIC FRONTIER FOUNDATION ,

https://www.eff.org/patent (last visited Oct. 4, 2015).143 See infra notes 144–49 and accompanying text.144 See, e.g. , POLR, AN EXPLANATION OF COMPUTATION THEORY FOR LAWYERS 1 (2009),

available at http://www.groklaw.net/pdf2/ComputationalTheoryforLawyers.pdf.145 See Gottschalk v. Benson, 409 U.S. 63, 71–72 (1972).146 See, e.g. , Complaint for Patent Infringement at 3, CyberSource Corp. v. Retail Decisions,

Inc., 620 F.Supp.2d 1068 (N.D. Cal 2009), aff’d 654 F.3d 1366 (Fed. Cir. 2011) (assertingdefendants “design, develop, use, offer for sale and sell in the United States fraud prevention

software products and services . . . which incorporate and use at least one invention claimed in

the ‘154 patent”) (emphasis added). 147 See, e.g. , Timothy B. Lee, Software Is Just Math. Really. , FORBES (Aug. 11, 2011, 2:29 PM),

http://www.forbes.com/sites/timothylee/2011/08/11/software-is-just-math-really/.

A computer program is a sequence of symbols that a hardware device

interprets as the steps of a mathematical algorithm. Every program takes

some inputs, applies some mathematical operations, and produces some

outputs. Microsoft Windows does this. Google’s search engine does this.

The software that controls your car’s fuel injector does this.

Id. PolR, A Simpler Explanation of Why Software is Mathematics , GROKLAW (Sept. 8, 2011, 9:00

AM), http://www.groklaw.net/article.php?story=20110908075658894; Jerome Carter, Yes,

Programming Is Math . . . , EHR SCIENCE (Sept. 15, 2014), http://ehrscience.com/2014/09/15/yes-

programming-is-math/; KEITH CARY CURTIS , AFTER THE SOFTWARE WARS 103–04 (2009)

(explaining lambda calculus, a programming language which can be used to express any

program written today, and which uses math as it’s foundation; because any program can be




use of mathematics related to that code.148 This is the thrust of the argument behind excluding software from patent-eligible subject matter.149

Beyond a pure statutory and case-law basis, there are also strong

policy premises to the industry concern with software patents. 150 Afundamental purpose behind the American patent system is to assist andencourage innovation.151 However, those within the industry and thosewithout, such as Nobel Prize-winning economist Gary Becker, actually believe software patents hurt the software industry and the economy atlarge.152 Studies suggest that the patent system actually inhibits progressand causes revenue loss within the industry.153 For this reason, numerousreforms to the patent system have been suggested.154 A presumptionagainst patentability would fix the problems presented by softwarepatents.155 Unless truly innovative, an individual or company would not be

expressed in lambda calculus “[a] patent on software is therefore a patent on math”).

148 See CURTIS , supra note 147.149 See Gottschalk v. Benson, 409 U.S. 63, 71–72 (1972).150 See infra notes 151–55 and accompanying text.151 See U.S. CONST. art. 1, § 8, cl. 8 (indicating that Congress is granted the right to give

patents to “ promote the progress of science and the useful arts”) (emphasis added). 152 See Gary Becker, On Reforming the Patent System—Becker , THE BECKER-POSNER BLOG (July

21, 2013, 2:58 PM), http://www.becker-posner-blog.com/2013/07/on-reforming-the-patent-

system-becker.html; Dave Thier, Google Exec Calls Patent Wars Not Helpful to Consumers ,

FORBES (Aug. 21, 2012, 5:42 PM), http://www.forbes.com/sites/davidthier/2012/08/21/google-

exec-calls-patent-wars-not-helpful-to-consumers/.153 See James Bessen, Jennifer Ford & Michael J. Meurer, The Private and Social Costs of Patent

Trolls , REGULATION , Winter 2011–2012, at 26, 29, available at http://object.cato.org/sites/

cato.org/files/serials/files/regulation/2012/5/v34n4-1.pdf (finding that NPE litigation, alone,

cost $500 billion dollars between 1990 and 2010—62% of the patents examined for the studywere classified as software patents); see, e.g. , James Bessen & Robert M. Hunt, An Empirical

Look at Software Patents 41 (Research on Innovation, Boston Univ. School of Law, working

paper No. 03-17/R), available at http://www.researchoninnovation.org/swpat.pdf (“Our results

are difficult to reconcile with the traditional incentive theory—that granting more patents will

increase R&D investments. Rather, if legal changes have encouraged strategic patenting, the

result might well be less innovation.”); James Bessen & Eric Maskin, Sequential Innovation,

Patents, and Imitation 2 (Mass. Inst. of Tech., Working Paper No. 00-01, 2000), available at

http://www.researchoninnovation.org/patent.pdf (“For industries like software or computers,

there is actually good reason to believe that imitation promotes innovation and that strong

patents (long patents of broad scope) inhibit it.”). But see Ronald J. Mann, Do Patents Facilitate

Financing in the Software Industry? , 83 TEX. L. REV. 961, 999 (2005).154 See, e.g. , KAMDAR , NAZER & RANIERI , supra note 58; Eric Goldman, How to Fix Software

Patents (Part 3 of 3) , FORBES (Dec. 12, 2012, 1:50 PM), http://www.forbes.com/sites/ericgoldman

/2012/12/12/how-to-fix-software-patents/.155 See generally Eric Goldman, The Problems with Software Patents (Part 1 of 3) , FORBES (Nov.

28, 2012, 2:53 PM), http://www.forbes.com/sites/ericgoldman/2012/11/28/the-problems-with-




Federal Circuit determined that these claims were patent-eligible because,rather than applying a pre-Internet-age abstract concept to the Internet or acomputer, the patent solved a problem created by the Internet.164 The Court

specifically distinguished Ultramercial’s patent because the claims in DDRHoldings particularly explained how “interactions with the Internet aremanipulated to yield a desired result.”165 The case also bizarrelycharacterized the “patent-ineligible abstract idea[]” in Ultramercial as easilyidentifiable.166

Upon comparing the two patents, however, the distinction made by thetwo separate panels of the Court becomes less convincing.167 AsUltramercial pointed out in its request for rehearing en banc , both of thepatents specifically recite a web server connected to the Internet, containsteps to access web-based content, display content based on userinteraction, and connect two parties.168 The Court in Ultramercial IIIdetermined the patent’s steps, which Ultramercial categorizes as

“programming-centric,”169

were only “pre-solution activity.”170

The Courtwas not persuaded by the potential for programming—at least not thethird time around.171 However, in DDR Holdings , the Court foundprogramming to be the patentability lynchpin: the specification that theCourt highlighted as distinct from merely claiming an abstract ideaimplemented on the Internet is created by “programming-centric” steps ofthe claims.172 This creates confusing precedent that gives no meaningfulassistance or direction to practitioners, and needs to be resolved in order toprovide some certainty in practice moving forward.173 Therefore, thoughthe Federal Circuit reached the correct result in Ultramercial III , it has onceagain created confusion in its application of the Supreme Court ’s abstract

164 See id. at 1257–59.165 Id. at 1258–59.166 Id. at 1256. This was a bizarre choice considering it took the Federal Circuit three issued

opinions to get to its present result. Id. 167 See supra note 166 and infra notes 168–71.168 Plaintiffs-Appellants’ Petition for Rehearing En Banc at 13, Ultramercial, LLC v.

WildTangent, Inc., 772 F.3d 709 (2014) (No. 2010-1544).169 See id. at 14.170 Ultramercial III , 772 F.3d 709, 716 (Fed. Cir. 2014).171 See id. at 715–16.172 See DDR Holdings, LLC v. Hotels.com, L.P., 773 F.3d 1245, 1258–59 (namely, website

generation).

173 See Quinn, supra note 87 (describing the Court’s distinction between the patents in DDR

Holdings and Ultramercial as “a very thin difference and a difference that is not at all likely to

lead to a repeatable and consistent test that can be applied in a predictable way”).




ideas precedent by drawing fuzzy distinctions between cases and patentswith no real tests or guidance for patent holders and practitioners.174

CONCLUSION

Subject matter eligibility, particularly the abstract ideas exception, has been increasingly controversial and confusing to apply in software patentlitigation. The Supreme Court has renewed its interest in the doctrine andthe Federal Circuit has continued to confuse its application to software.The Ultramercial saga demonstrates the Federal Circuit’s struggle—andsubsequent failure—to synthesize the new Supreme Court subject mattereligibility doctrine. Although the Federal Circuit made progress in the mostrecent Ultramercial opinion by recognizing the Internet is a technologicalenvironment, upholding a 12(b)(6) dismissal, and suggesting that softwarepatents may be presumed to be drawn to ineligible subject matter, it stillhas a ways to go. Ultramercial III , in combination with DDR Holdings ,shows that the Court is drawing fuzzy and confusing distinctions in thisarea of law. Moving forward, the lines between Ultramercial and DDRHoldings will not be workable; the Court needs to work on creating clearerrules and providing better guidance to patent holders and lawyers.

174 See supra notes 159–71 and accompanying text.

Knapp: Ultramercial III

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