Ultramercial, Inc. v. Hulu, LLC

United States Court of Appeals

for the Federal Circuit

______________________

ULTRAMERCIAL, INC., AND ULTRAMERCIAL, LLC,

Plaintiffs-Appellants,

v.

HULU, LLC,

Defendant,

AND

WILDTANGENT, INC.,

Defendant-Appellee.

______________________

2010-1544

______________________

Appeal from the United States District Court for the

Central District of California in No. 09-CV-6918, Judge R.

Gary Klausner.

______________________

Decided: November 14, 2014

______________________

LAWRENCE M. HADLEY, McKool Smith Hennigan, P.C.,

of Los Angeles, California, for plaintiffs-appellants.

GREGORY G. GARRE, Latham & Watkins LLP, of

Washington, DC, for defendant-appellee. With him on the

supplemental brief were GABRIEL K. BELL, of Washington,

DC, and RICHARD G. FRENKEL and LISA K. NGUYEN, of

2 ULTRAMERCIAL, INC. v. HULU, LLC

Menlo Park, California. Of counsel were RICHARD P.

BRESS and Katherine I. Twomey, of Washington, DC.

CHARLES DUAN, Public Knowledge, of Washington,

DC, for amicus curiae Public Knowledge.

DANIEL NAZER, Electronic Frontier Foundation, of San

Francisco, California, for amicus curiae Electronic Fron-

tier Foundation. With him on the brief was VERA

RANIERI. Of counsel was JULIE P. SAMUELS.

DARYL L. JOSEFFER, King & Spalding LLP, of Wash-

ington, DC, for amicus curiae Google Inc. With him on

the brief was ADAM M. CONRAD, of Charlotte, North

Carolina.

JAMES L. QUARLES III, Wilmer Cutler Pickering Hale

and Dorr LLP, of Washington, DC, for amicus curiae The

Clearing House Association, L.L.C. With him on the brief

were GREGORY H. LANTIER, THOMAS G. SAUNDERS, and

DANIEL AGUILAR.

______________________

Before LOURIE, MAYER, * and O’MALLEY, Circuit

Judges.

Opinion for the court filed by Circuit Judge LOURIE.

Concurring Opinion filed by Circuit Judge MAYER.

LOURIE, Circuit Judge.

This appeal has returned to the court following an up

and down journey to and from the Supreme Court. In our

original decision, we reversed the district court’s holding

* Pursuant to Fed. Cir. Internal Operating Proce-

dure 15 ¶ 2 (Nov. 14, 2008), Circuit Judge Mayer was

designated to replace Randall R. Rader, now retired, on

this panel.

ULTRAMERCIAL, INC. v. HULU, LLC 3

that granted WildTangent, Inc.’s (“WildTangent”) motion

to dismiss Ultramercial, LLC and Ultramercial, Inc.’s

(collectively “Ultramercial”) patent infringement com-

plaint under Fed. R. Civ. P. 12(b)(6). See Ultramercial,

LLC v. Hulu, LLC, 657 F.3d 1323 (Fed. Cir. 2011), vacat-

ed sub nom. WildTangent, Inc. v. Ultramercial, LLC, 566

U.S. __, 132 S. Ct. 2431 (2012). The district court had

held that U.S. Patent 7,346,545 (the “’545 patent”), the

basis for the complaint, does not claim patent-eligible

subject matter under 35 U.S.C. § 101. See Ultramercial,

LLC v. Hulu, LLC, No. 09-06918, 2010 WL 3360098 (C.D.

Cal. Aug. 13, 2010)

The present posture of the case is that Ultramercial is

again appealing from the decision of the United States

District Court for the Central District of California. Upon

review of the ’545 patent and the standards adopted by

the Supreme Court, for the reasons set forth below, we

conclude that the ’545 patent does not claim patent-

eligible subject matter and accordingly affirm the district

court’s grant of WildTangent’s motion to dismiss.

BACKGROUND

Ultramercial owns the ’545 patent directed to a meth-

od 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 copyright-

ed content. Claim 1 of the ’545 patent is representative

and reads as follows:

A method for distribution of products over the In-

ternet 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

4 ULTRAMERCIAL, INC. v. HULU, LLC

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 mes-

sage to be associated with the media

product, said sponsor message being se-

lected from a plurality of sponsor messag-

es, 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 prod-

uct 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 ac-

cess 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 consum-

er a request to view the sponsor message,

wherein the consumer submits said re-

quest in response to being offered access to

the media product;

a seventh step of, in response to receiving

the request from the consumer, facilitat-

ing 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 af-

ULTRAMERCIAL, INC. v. HULU, LLC 5

ter 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 al-

lowing 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 pre-

sented; and

an eleventh step of receiving payment

from the sponsor of the sponsor message

displayed.

’545 patent col. 8 ll. 5–48. As the other claims of the

patent are drawn to a similar process, they suffer from

the same infirmity as claim 1 and need not be considered

further.

As indicated above, Ultramercial sued Hulu, LLC

(“Hulu”), YouTube, LLC (“YouTube”), and WildTangent,

alleging infringement of all claims of the ’545 patent.

Ultramercial, 2010 WL 3360098, at *1. Hulu and

YouTube were dismissed from the case for reasons we

need not concern ourselves with here, Ultramercial, 657

F.3d at 1325, but WildTangent moved to dismiss for

failure to state a claim, arguing that the ’545 patent did

not claim patent-eligible subject matter. Ultramercial,

2010 WL 3360098, at *2. The district court granted

WildTangent’s pre-answer motion to dismiss under Rule

12(b)(6) without formally construing the claims. Id. at

*6–7. Ultramercial timely appealed.

We reversed, concluding that the district court erred

in granting WildTangent’s motion to dismiss for failing to

6 ULTRAMERCIAL, INC. v. HULU, LLC

claim statutory subject matter. See Ultramercial, 657

F.3d at 1330. WildTangent then filed a petition for a writ

of certiorari, requesting review by the Supreme Court.

The Supreme Court granted the petition, vacated our

decision, and remanded the case for further consideration

in light of its decision in Mayo Collaborative Services v.

Prometheus Laboratories, Inc., 566 U.S. __, 132 S. Ct.

1289 (2012). WildTangent, 132 S. Ct. 2431.

On remand, we again reversed, concluding that the

district court erred in granting WildTangent’s motion to

dismiss for failing to claim statutory subject matter. See

Ultramercial, LLC v. Hulu, LLC, 722 F.3d 1335 (Fed. Cir.

2013), vacated sub nom. WildTangent, Inc. v. Ultramer-

cial, LLC, 573 U.S. __, 134 S. Ct. 2870 (2014). The saga

continued as WildTangent filed a petition for certiorari

from our 2013 decision, again requesting review by the

Supreme Court.

While WildTangent’s petition was pending, the Su-

preme Court issued its decision in Alice Corp. v. CLS

Bank International, 573 U.S. __, 134 S. Ct. 2347 (2014).

In that case, the Court affirmed our judgment that meth-

od and system claims directed to a computer-implemented

scheme for mitigating settlement risk by using a third

party intermediary were not patent-eligible under § 101

because the claims “add nothing of substance to the

underlying abstract idea.” See Alice, 134 S. Ct. at 2359–

60. The Court in Alice made clear that a claim that is

directed to an abstract idea does not move into § 101

eligibility territory by “merely requir[ing] generic comput-

er implementation.” Id. at 2357.

Subsequently, the Court granted WildTangent’s peti-

tion for a writ of certiorari, vacated our decision, and

remanded the case for further consideration in light of

Alice. See WildTangent, 134 S. Ct. 2870. We invited and

received briefing by the parties. We also received four

amicus briefs, all in support of the appellee, WildTangent.

ULTRAMERCIAL, INC. v. HULU, LLC 7

DISCUSSION

As indicated, this case is back to this court on Ultra-

mercial’s original appeal from the district court’s dismis-

sal, but in its present posture we have the added benefit

of the Supreme Court’s reasoning in Alice. We review a

district court’s dismissal for failure to state a claim under

the law of the regional circuit in which the district court

sits, here the Ninth Circuit. Juniper Networks, Inc. v.

Shipley, 643 F.3d 1346, 1350 (Fed. Cir. 2011) (citation

omitted). The Ninth Circuit reviews de novo challenges to

a dismissal for failure to state a claim under Fed. R. Civ.

P. 12(b)(6). Livid Holdings Ltd. v. Salomon Smith Bar-

ney, Inc., 416 F.3d 940, 946 (9th Cir. 2005). We review

questions concerning patent-eligible subject matter under

35 U.S.C. § 101 without deference. Research Corp. Techs.,

Inc. v. Microsoft Corp., 627 F.3d 859, 867 (Fed. Cir. 2010).

A § 101 analysis begins by identifying whether an in-

vention fits within one of the four statutorily provided

categories of patent-eligible subject matter: processes,

machines, manufactures, and compositions of matter. 35

U.S.C. § 101. Section 101 “contains an important implicit

exception: Laws of nature, natural phenomena, and

abstract ideas are not patentable.” Alice, 134 S. Ct. at

2354 (quoting Ass’n for Molecular Pathology v. Myriad

Genetics., Inc., 569 U.S. __, 133 S. Ct. 2107, 2116 (2013)).

In Alice, the Supreme Court identified a “framework for

distinguishing patents that claim laws of nature, natural

phenomena, and abstract ideas from those that claim

patent-eligible applications of those concepts.” Id. at 2355

(citing Mayo, 132 S. Ct. at 1296–97). “First, we determine

whether the claims at issue are directed to one of those

patent-ineligible concepts.” Id. If not, the claims pass

muster under § 101. Then, in the second step, if we

determine that the claims at issue are directed to one of

those patent-ineligible concepts, we must determine

whether the claims contain “an element or combination of

elements that is ‘sufficient to ensure that the patent in

8 ULTRAMERCIAL, INC. v. HULU, LLC

practice amounts to significantly more than a patent upon

the [ineligible concept] itself.’” Id. (quoting Mayo, 132 S.

Ct. at 1294) (alteration in original).

Ultramercial argues that the ’545 claims are not di-

rected to the type of abstract idea at issue in Alice—one

that was “routine,” “long prevalent,” or “conventional”—

and are, instead, directed to a specific method of advertis-

ing and content distribution that was previously unknown

and never employed on the Internet before. In other

words, Ultramercial argues that the Supreme Court

directs us to use a type of 103 analysis when assessing

patentability so as to avoid letting § 101 “swallow all of

patent law.” Alice, 134 S. Ct. at 2354. According to

Ultramercial, abstract ideas remain patent-eligible under

§ 101 as long as they are new ideas, not previously well

known, and not routine activity. Ultramercial contends,

moreover, that, even if the claims are directed to an

abstract idea, the claims remain patent-eligible because

they extend beyond generic computer implementation of

that abstract idea. Ultramercial argues that the claims

require users to select advertisements, which was a

change from existing methods of passive advertising and

involves more than merely implementing an abstract

idea.

WildTangent responds that the ’545 claims are di-

rected to the abstract idea of offering free media in ex-

change for watching advertisements and that the mere

implementation of that idea on a computer does not

change that fact. WildTangent contends that because the

claims do no more than break the abstract idea into basic

steps and add token extra-solution activity, the claims

add no meaningful limitations to convert the abstract idea

into patent-eligible subject matter.

We agree with WildTangent that the claims of the

’545 patent are not directed to patent-eligible subject

matter. Following the framework set out in Alice, we first

ULTRAMERCIAL, INC. v. HULU, LLC 9

“determine whether the claims at issue are directed to one

of those patent-ineligible concepts.” Id. at 2355 (citing

Mayo, 132 S. Ct. at 1296–97). The district court found

that the abstract idea at the heart of the ’545 patent was

“that one can use [an] advertisement as an exchange or

currency.” Ultramercial, 2010 WL 3360098, at *6. We

agree.

We first examine the claims because claims are the

definition of what a patent is intended to cover. An

examination of the claim limitations of the ’545 patent

shows that claim 1 includes eleven steps for displaying an

advertisement in exchange for access to copyrighted

media. Without purporting to construe the claims, as the

district court did not, the steps include: (1) receiving

copyrighted media from a content provider; (2) selecting

an ad after consulting an activity log to determine wheth-

er the ad has been played less than a certain number of

times; (3) offering the media for sale on the Internet; (4)

restricting public access to the media; (5) offering the

media to the consumer in exchange for watching the

selected ad; (6) receiving a request to view the ad from the

consumer; (7) facilitating display of the ad; (8) allowing

the consumer access to the media; (9) allowing the con-

sumer access to the media if the ad is interactive; (10)

updating the activity log; and (11) receiving payment from

the sponsor of the ad. ’545 patent col. 8 ll. 5–48.

This ordered combination of steps recites an abstrac-

tion—an idea, having no particular concrete or tangible

form. The process of receiving copyrighted media, select-

ing an ad, offering the media in exchange for watching the

selected ad, displaying the ad, allowing the consumer

access to the media, and receiving payment from the

sponsor of the ad all describe an abstract idea, devoid of a

concrete or tangible application. Although certain addi-

tional limitations, such as consulting an activity log, add

a degree of particularity, the concept embodied by the

majority of the limitations describes only the abstract

10 ULTRAMERCIAL, INC. v. HULU, LLC

idea of showing an advertisement before delivering free

content.

As the Court stated in Alice, “[a]t some level, ‘all in-

ventions . . . embody, use, reflect, rest upon, or apply laws

of nature, natural phenomena, or abstract ideas.’” Alice,

134 S. Ct. at 2354 (quoting Mayo, 132 S. Ct. at 1293). We

acknowledge this reality, and we do not purport to state

that all claims in all software-based patents will neces-

sarily be directed to an abstract idea. Future cases may

turn out differently. But here, the ’545 claims are indeed

directed to an abstract idea, which is, as the district court

found, a method of using advertising as an exchange or

currency. We do not agree with Ultramercial that the

addition of merely novel or non-routine components to the

claimed idea necessarily turns an abstraction into some-

thing concrete. In any event, any novelty in implementa-

tion of the idea is a factor to be considered only in the

second step of the Alice analysis.

The second step in the analysis requires us to deter-

mine whether the claims do significantly more than

simply describe that abstract method. Mayo, 132 S. Ct. at

1297. We must examine the limitations of the claims to

determine whether the claims contain an “inventive

concept” to “transform” the claimed abstract idea into

patent-eligible subject matter. Alice, 134 S. Ct. at 2357

(quoting Mayo, 132 S. Ct. at 1294, 1298). The transfor-

mation of an abstract idea into patent-eligible subject

matter “requires ‘more than simply stat[ing] the [abstract

idea] while adding the words ‘apply it.’” Id. (quoting

Mayo, 132 S. Ct. at 1294) (alterations in original). “A

claim that recites an abstract idea must include ‘addition-

al features’ to ensure ‘that the [claim] is more than a

drafting effort designed to monopolize the [abstract

idea].’” Id. (quoting Mayo, 132 S. Ct. at 1297) (alterations

in original). Those “additional features” must be more

than “well-understood, routine, conventional activity.”

Mayo, 132 S. Ct. at 1298.

ULTRAMERCIAL, INC. v. HULU, LLC 11

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. None of these eleven

individual steps, viewed “both individually and ‘as an

ordered combination,’” transform the nature of the claim

into patent-eligible subject matter. See Alice, 134 S. Ct.

at 2355 (quoting Mayo, 132 S. Ct. at 1297, 1298). The

majority of those steps comprise the abstract concept of

offering media content in exchange for viewing an adver-

tisement. Adding routine additional steps such as updat-

ing an activity log, requiring a request from the consumer

to view the ad, restrictions on public access, and use of the

Internet does not transform an otherwise abstract idea

into patent-eligible subject matter. Instead, the claimed

sequence of steps comprises only “conventional steps,

specified at a high level of generality,” which is insuffi-

cient to supply an “inventive concept.” Id. at 2357 (quot-

ing Mayo, 132 S. Ct. at 1294, 1297, 1300). Indeed, the

steps of consulting and updating an activity log represent

insignificant “data-gathering steps,” CyberSource Corp. v.

Retail Decisions, Inc., 654 F.3d 1366, 1370 (Fed. Cir.

2011), and thus add nothing of practical significance to

the underlying abstract idea. Further, that the system is

active, rather than passive, and restricts public access

also represents only insignificant “[pre]-solution activity,”

which is also not sufficient to transform an otherwise

patent-ineligible abstract idea into patent-eligible subject

matter. Mayo, 132 S. Ct. at 1298 (alteration in original).

The claims’ invocation of the Internet also adds no in-

ventive concept. As we have held, the use of the Internet

is not sufficient to save otherwise abstract claims from

ineligibility under § 101. See CyberSource, 654 F.3d at

1370 (reasoning that the use of the Internet to verify

credit card transaction does not meaningfully add to the

abstract idea of verifying the transaction). Narrowing the

12 ULTRAMERCIAL, INC. v. HULU, LLC

abstract idea of using advertising as a currency to the

Internet is an “attempt[] to limit the use” of the abstract

idea “to a particular technological environment,” which is

insufficient to save a claim. Alice, 134 S. Ct. at 2358

(citing Bilski v. Kappos, 561 U.S. 593, 610–11, 130 S. Ct.

3218, 3230 (2010)). Given the prevalence of the Internet,

implementation of an abstract idea on the Internet in this

case is not sufficient to provide any “practical assurance

that the process is more than a drafting effort designed to

monopolize the [abstract idea] itself.” Mayo, 132 S. Ct. at

1297. In sum, each of those eleven steps merely instructs

the practitioner to implement the abstract idea with

“routine, conventional activit[ies],” which is insufficient to

transform the patent-ineligible abstract idea into patent-

eligible subject matter. Id. at 1298. That some of the

eleven steps were not previously employed in this art is

not enough—standing alone—to confer patent eligibility

upon the claims at issue.

While the Supreme Court has held that the machine-

or-transformation test is not the sole test governing § 101

analyses, Bilski, 561 U.S. at 604, that test can provide a

“useful clue” in the second step of the Alice framework, see

Bancorp Servs., L.L.C., v. Sun Life Assurance Co. of Can.,

687 F.3d 1266, 1278 (Fed. Cir. 2012) (holding that the

machine-or-transformation test remains an important

clue in determining whether some inventions are process-

es under § 101), cert denied, 573 U.S. __, 134 S. Ct. 2870

(2014). A claimed process can be patent-eligible under

§ 101 if: “(1) it is tied to a particular machine or appa-

ratus, or (2) it transforms a particular article into a

different state or thing.” In re Bilski, 545 F.3d 943, 954

(Fed. Cir. 2008) (en banc), aff’d on other grounds, Bilski,

561 U.S. 593.

The claims of the ’545 patent, however, are not tied to

any particular novel machine or apparatus, only a general

purpose computer. As we have previously held, the

Internet is not sufficient to save the patent under the

ULTRAMERCIAL, INC. v. HULU, LLC 13

machine prong of the machine-or-transformation test.

CyberSource, 654 F.3d at 1370. It is a ubiquitous infor-

mation-transmitting medium, not a novel machine. And

adding a computer to otherwise conventional steps does

not make an invention patent-eligible. Alice, 134 S. Ct. at

2357. Any transformation from the use of computers or

the transfer of content between computers is merely what

computers do and does not change the analysis.

Although the preamble of claim 1 also requires a facil-

itator, ’545 patent col 8, l. 6, the specification makes clear

that the facilitator can be a person and not a machine, id.

col. 3, ll. 47–50. Thus, nowhere does the ’545 patent tie

the claims to a novel machine.

The claims of the ’545 patent also fail to satisfy the

transformation prong of the machine-or-transformation

test. The method as claimed refers to a transaction

involving the grant of permission and viewing of an

advertisement by the consumer, the grant of access by the

content provider, and the exchange of money between the

sponsor and the content provider. These manipulations of

“public or private legal obligations or relationships, busi-

ness risks, or other such abstractions cannot meet the test

because they are not physical objects or substances, and

they are not representative of physical objects or sub-

stances.” Bilski, 545 F.3d at 963. We therefore hold that

the claims of the ’545 patent do not transform any article

to a different state or thing. While this test is not conclu-

sive, it is a further reason why claim 1 of the ’545 patent

does not contain anything more than conventional steps

relating to using advertising as a currency.

CONCLUSION

Because the ’545 patent claims are directed to no

more than a patent-ineligible abstract idea, we conclude

that the district court did not err in holding that the ’545

patent does not claim patent-eligible subject matter.

14 ULTRAMERCIAL, INC. v. HULU, LLC

Accordingly, the decision of the district court granting

WildTangent’s motion to dismiss is affirmed.

AFFIRMED

United States Court of Appeals

for the Federal Circuit

______________________

ULTRAMERCIAL, INC., AND ULTRAMERCIAL, LLC,

Plaintiffs-Appellants,

v.

HULU, LLC,

Defendant,

AND

WILDTANGENT, INC.,

Defendant-Appellee.

______________________

2010-1544

______________________

MAYER, Circuit Judge, concurring.

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.

2 ULTRAMERCIAL, INC. v. HULU, LLC

I.

The Constitution’s Intellectual Property Clause is at

once a grant of power and a restriction on that power.

Graham v. John Deere Co., 383 U.S. 1, 5 (1966); see also

In re Yuan, 188 F.2d 377, 380 (CCPA 1951) (explaining

that the constitutional grant of authority to issue patents

“is the only one of the several powers conferred upon the

Congress which is accompanied by a specific statement of

the reason for it”). Unless we are to assume that the

constraints explicit in the Intellectual Property Clause

are mere surplusage, we are bound to ensure that the

patent monopoly serves “[t]o promote the Progress of

Science and useful Arts,” U.S. Const. art. I, § 8, cl. 8.

“This is the standard expressed in the Constitution and it

may not be ignored.” Graham, 383 U.S. at 6.

Section 101 is the gateway to the Patent Act for good

reason. It is the sentinel, charged with the duty of

ensuring that our nation’s patent laws encourage, rather

than impede, scientific progress and technological

innovation. See Mayo Collaborative Servs. v. Prometheus

Labs., Inc., 132 S. Ct. 1289, 1301 (2012) (emphasizing

that patent protection may not “foreclose[] more future

invention than the underlying discovery could reasonably

justify”); Motion Picture Patents Co. v. Universal Film

Mfg. Co., 243 U.S. 502, 511 (1917) (explaining that “the

primary purpose” of the patent system is to promote

scientific progress, not to “creat[e] . . . private fortunes for

the owners of patents”). The Supreme Court has thus

dictated that section 101 imposes “a threshold test,” Bilski

v. Kappos, 561 U.S. 593, 602 (2010), one that must be

satisfied before a court can proceed to consider

subordinate validity issues such as non-obviousness under

35 U.S.C. § 103 or adequate written description under 35

U.S.C. § 112. See Parker v. Flook, 437 U.S. 584, 593

(1978) (“Flook”) (“The obligation to determine what type of

discovery is sought to be patented” so as to determine

whether it falls within the ambit of section 101 “must

ULTRAMERCIAL, INC. v. HULU, LLC 3

precede the determination of whether that discovery is, in

fact, new or obvious.”). This court has likewise correctly

recognized that subject matter eligibility is the primal

inquiry, one that must be addressed at the outset of

litigation. See In re Comiskey, 554 F.3d 967, 973 (Fed.

Cir. 2009) (“Only if the requirements of § 101 are satisfied

is the inventor allowed to pass through to the other

requirements for patentability, such as novelty under

§ 102 and . . . non-obviousness under § 103.” (citations

and internal quotation marks omitted)); State St. Bank &

Trust Co. v. Signature Fin. Group, Inc., 149 F.3d 1368,

1372 n.2 (Fed. Cir. 1998) (Section 101 is “[t]he first door

which must be opened on the difficult path to

patentability.” (citations and internal quotation marks

omitted)).

In this sense, the section 101 determination bears

some of the hallmarks of a jurisdictional inquiry. Just as

a court must assure itself of its own jurisdiction before

resolving the merits of a dispute, see Diggs v. Dep’t of

Hous. & Urban Dev., 670 F.3d 1353, 1355 (Fed. Cir.

2011), it must likewise first assess whether claimed

subject matter is even eligible for patent protection before

addressing questions of invalidity or infringement. If a

patent is not directed to “the kind of discover[y]” that the

patent laws were intended to protect, Flook, 437 U.S. at

593 (1978) (internal quotation marks omitted), there is no

predicate for any inquiry as to whether particular claims

are invalid or infringed. Indeed, if claimed subject matter

does not fall within the ambit of section 101, any

determination on validity or infringement constitutes an

impermissible advisory opinion. See Oil, Chem. & Atomic

Workers Int’l Union v. Missouri, 361 U.S. 363, 367 (1960)

(emphasizing that federal courts are to decide only “actual

controversies by a judgment which can be carried into

effect, and not to give opinions upon moot questions or

abstract propositions” (citations and internal quotation

marks omitted)).

4 ULTRAMERCIAL, INC. v. HULU, LLC

From a practical perspective, addressing section 101

at the outset of litigation will have a number of salutary

effects. First, it will conserve scarce judicial resources.

Failure to recite statutory subject matter is the sort of

“basic deficiency,” that can, and should, “be exposed at the

point of minimum expenditure of time and money by the

parties and the court,” Bell Atl. Corp. v. Twombly, 550

U.S. 544, 558 (2007) (citations and internal quotation

marks omitted). Here, for example, the district court

properly invoked section 101 to dismiss Ultramercial’s

infringement suit on the pleadings. No formal claim

construction was required because the asserted claims

disclosed no more than “an abstract idea garnished with

accessories” and there was no “reasonable construction

that would bring [them] within patentable subject

matter.” Ultramercial, LLC v. Hulu, LLC, No. 09-CV-

6918, 2010 WL 3360098, at *6 (C.D. Cal. Aug. 13, 2010).

Second, resolving subject matter eligibility at the

outset provides a bulwark against vexatious infringement

suits. The scourge of meritless infringement claims has

continued unabated for decades due, in no small measure,

to the ease of asserting such claims and the enormous

sums required to defend against them. Those who own

vague and overbroad business method patents will often

file “nearly identical patent infringement complaints

against a plethora of diverse defendants,” and then

“demand . . . a quick settlement at a price far lower than

the cost to defend the litigation.” Eon-Net LP v. Flagstar

Bancorp, 653 F.3d 1314, 1326 (Fed. Cir. 2011). In many

such cases, the patentee will “place[] little at risk when

filing suit,” whereas the accused infringer will be forced to

spend huge sums to comply with broad discovery

requests. Id. at 1327 (noting that accused infringers are

often required “to produce millions of pages of documents,

collected from central repositories and numerous

document custodians”). Given the staggering costs

associated with discovery, “Markman” hearings, and trial,

ULTRAMERCIAL, INC. v. HULU, LLC 5

it is hardly surprising that accused infringers feel

compelled to settle early in the process. See id. (noting

that the accused infringer had “expended over $600,000 in

attorney fees and costs to litigate [the] case through claim

construction”); see also Cardinal Chem. Co. v. Morton

Int’l, Inc., 508 U.S. 83, 101 n.24 (1993), (explaining that

“prospective defendants will often decide that paying

royalties under a license or other settlement is preferable

to the costly burden of challenging [a] patent” (citations

and internal quotation marks omitted)). Addressing

section 101 at the threshold will thwart attempts—some

of which bear the “‘indicia of extortion,’” Eon-Net, 653

F.3d at 1326—to extract “nuisance value” settlements

from accused infringers. Id. at 1327; see also id. at 1328

(explaining that the asserted patents “protected only

settlement receipts, not . . . products”).

Finally, and most importantly, turning to section 101

at the outset protects the public. See Cardinal Chem.,

508 U.S. at 101 (emphasizing the public interest in

preventing the “grant [of] monopoly privileges to the

holders of invalid patents” (footnote omitted)). Subject

matter eligibility challenges provide the most efficient

and effective tool for clearing the patent thicket, weeding

out those patents that stifle innovation and transgress the

public domain. As a general matter, trial courts have

broad discretion in controlling their dockets and in

determining the order in which issues are to be

adjudicated. But the public interest in eliminating

defective patents is an “even more important

countervailing concern[],” Cardinal Chem., 508 U.S. at 99,

which counsels strongly in favor of resolving subject

matter eligibility at the threshold of litigation. Indeed, it

was this impulse which impelled the Supreme Court to

insist that this court address invalidity claims,

notwithstanding a finding of no infringement. Id. at 99–

101. The need for early resolution of eligibility is even

more compelling. See Pope Mfg. Co. v. Gormully, 144 U.S.

6 ULTRAMERCIAL, INC. v. HULU, LLC

224, 234 (1892) (“It is as important to the public that

competition should not be repressed by worthless patents,

as that the patentee of a really valuable invention should

be protected in his monopoly.”).

II.

The Supreme Court has taken up four subject matter

eligibility challenges in as many years, endeavoring to

right the ship and return the nation’s patent system to its

constitutional moorings. See Alice, 134 S. Ct. at 2357

(concluding that “generic computer implementation” did

not bring claims within section 101); Ass’n for Molecular

Pathology v. Myriad Genetics, Inc., 133 S. Ct. 2107, 2117–

18 (2013) (“Myriad”) (concluding that claims covering

naturally-occurring DNA segments were patent

ineligible); Mayo, 132 S. Ct. at 1302 (concluding that

claims describing a natural law but “add[ing] nothing of

significance” to that law fell outside section 101); Bilski,

561 U.S. at 611 (concluding that a method for hedging

against economic risk was a patent ineligible abstract

idea). Rejecting efforts to treat section 101 as a “dead

letter,” Mayo, 132 S. Ct. at 1303, the Court has

unequivocally repudiated the overly expansive approach

to patent eligibility that followed in the wake of State

Street, 149 F.3d at 1373. See Bilski, 561 U.S. at 659

(Breyer, J., concurring in the judgment) (explaining that

State Street “preceded the granting of patents that ranged

from the somewhat ridiculous to the truly absurd”

(citations and internal quotation marks omitted)).

The rationale for the presumption of validity is that

the United States Patent and Trademark Office (“PTO”),

“in its expertise, has approved the claim.” KSR Int’l Co. v.

Teleflex Inc., 550 U.S. 398, 426 (2007). That rationale,

however, is “much diminished” in situations in which the

PTO has not properly considered an issue. Id. Because

the PTO has for many years applied an insufficiently

rigorous subject matter eligibility standard, no

ULTRAMERCIAL, INC. v. HULU, LLC 7

presumption of eligibility should attach when assessing

whether claims meet the demands of section 101.

Indeed, applying a presumption of eligibility is

particularly unwarranted given that the expansionist

approach to section 101 is predicated upon a

misapprehension of the legislative history of the 1952

Patent Act. Those who support a “coarse filter” approach

to section 101 often argue that the Act’s legislative history

demonstrates that Congress intended statutory subject

matter to “include anything under the sun that is made

by man.” See, e.g., AT&T Corp. v. Excel Commc’ns, Inc.,

172 F.3d 1352, 1355 (Fed. Cir. 1999). Read in context,

however, the legislative history says no such thing. See

Mayo, 132 S. Ct. at 1303–04. The full statement from the

committee report reads: “A person may have ‘invented’ a

machine or a manufacture, which may include anything

under the sun that is made by man, but it is not

necessarily patentable under section 101 unless the

conditions of the title are fulfilled.” H.R. Rep. No. 1923,

82d Cong., 2d Sess., at 6 (1952) (emphasis added). Thus,

far from supporting an expansive approach to section 101,

the relevant legislative history makes clear that while a

person may have “invented” something under the sun, it

does not qualify for patent protection unless the Patent

Act’s statutory requirements have been satisfied.

Although the Supreme Court has taken up several

section 101 cases in recent years, it has never

mentioned—much less applied—any presumption of

eligibility. The reasonable inference, therefore, is that

while a presumption of validity attaches in many

contexts, see Microsoft Corp. v. i4i Ltd. P’ship, 131 S. Ct.

2238, 2243–47 (2011), no equivalent presumption of

eligibility applies in the section 101 calculus.

III.

Alice recognized that the patent system does not

extend to all products of human ingenuity. 134 S. Ct. at

8 ULTRAMERCIAL, INC. v. HULU, LLC

2358–60; see also Myriad, 133 S. Ct. at 2117

(“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. 1 134 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.

1 The Court noted that “the concept of

intermediated settlement is a fundamental economic

practice long prevalent in our system of commerce.” Alice,

134 S. Ct. at 2356 (citations and internal quotation marks

omitted). But whether the “concept” of intermediated

settlement is an abstract idea is a wholly different

question from whether the claimed invention provided a

useful and innovative application of that concept.

ULTRAMERCIAL, INC. v. HULU, LLC 9

In Bilski, 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. 2 An idea is

2 Some charge that if patent eligibility turns on the

disclosure of technology that is both “new” and clearly

delineated, section 101 will subsume the non-obviousness

and adequate written description inquiries set out in

subsequent sections of the Patent Act. The simple fact,

however, is that this court’s approach to sections 103 and

10 ULTRAMERCIAL, INC. v. HULU, LLC

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

112 has proved woefully inadequate in preventing a

deluge of very poor quality patents. See, e.g., Gerard N.

Magliocca, Patenting the Curve Ball: Business Methods &

Industry Norms, 2009 BYU L. Rev. 875, 900 (2009)

(“[T]here is no evidence that relying on §§ 102, 103, or 112

will solve the problem [of poor quality business method

and software patents]. This claim was made ten years

ago. It is still being made now. At what point does this

argument run out of credibility?” (footnote omitted)).

Section 101’s vital role—a role that sections 103 and 112

“are not equipped” to take on, Mayo, 132 S. Ct. at 1304—

is to cure systemic constitutional infirmities by

eradicating those patents which stifle technological

progress and unjustifiably impede the free flow of ideas

and information.

ULTRAMERCIAL, INC. v. HULU, LLC 11

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, 132 S. Ct. at 1303; see Motion Picture

Patents, 243 U.S. at 513 (“[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.

IV.

Ultramercial’s asserted claims fall short of Alice’s

technological arts test. Their purported inventive concept

is that people will be willing to watch online

advertisements in exchange for the opportunity to view

copyrighted materials. See U.S. Patent No. 7,346,545

col.8 ll.5–48. Because the innovative aspect of the

claimed invention is an entrepreneurial rather than a

technological one, it is patent ineligible.

The fact that the asserted claims “require a

substantial and meaningful role for the computer,” Alice,

134 S. Ct. at 2359 (citations and internal quotation marks

omitted)), is insufficient to satisfy the technological arts

test. It is not that generic computers and the Internet are

not “technology,” but instead that they have become

indispensable staples of contemporary life. Because they

are the basic tools of modern-day commercial and social

interaction, their use should in general remain “free to all

men and reserved exclusively to none,” Funk Bros. Seed

Co. v. Kalo Inoculant Co., 333 U.S. 127, 130 (1948); see

Alice, 134 S. Ct. at 2354 (“[M]onopolization of [the basic

tools of scientific and technological work] through the

grant of a patent might tend to impede innovation more

12 ULTRAMERCIAL, INC. v. HULU, LLC

than it would tend to promote it, thereby thwarting the

primary object of the patent laws.” (citations and internal

quotation marks omitted)); Graham, 383 U.S. at 6

(“Congress may not authorize the issuance of patents

whose effects are to remove existent knowledge from the

public domain, or to restrict free access to materials

already available.”). Accordingly, claims like those

asserted by Ultramercial, which “simply instruct the

practitioner to implement [an] abstract idea . . . on a

generic computer,” Alice, 134 S. Ct. at 2359, do not pass

muster under section 101.