Full circuit at the CAFC

The Court of Appeals of the Federal Circuit (CAFC) has handed down its second panel decision  in Ultramercial V Hulu. The CAFC re-heard the case a second time following a remand from the Supreme Court (SCOTUS) with instructions to reconsider the case in view of the higher court’s findings in Mayo v Prometheus.

This second decision, like the first panel decision, is marked precedential. Both the first and second panel decisions in this case  cite an earlier decision of the court [In re Alappat, 33 F.3d 1526 (Fed. Cir. 1994) (en banc)].

In the first panel decision the court relied upon Alappat to support the premise that “…programming creates a new machine, because a general purpose computer in effect becomes a special purpose computer once it is programmed to perform particular functions pursuant to instructions from program software.”

This second panel decision makes a similar reference to Alappat (page 24):

A special purpose computer, i.e., a new machine, specially designed to implement a process may be sufficient. See Alappat, 33 F.3d at 1544 (“Although many, or arguably even all, of the means elements recited in claim 15 represent circuitry elements that perform mathematical calculations, which is essentially true of all digital electrical circuits, the claimed invention as a whole is directed to a combination of interrelated elements which combine to form a machine for converting discrete waveform data samples into anti-aliased pixel illumination intensity data to be displayed on a display means. This is not a disembodied mathematical concept which may be characterized as an ‘abstract idea,’ but rather a specific machine to produce a useful, concrete, and tangible result.” (footnotes omitted)); see also id.at 1545 (“We have held that such programming creates a new machine, because a general purpose computer in effect becomes a special purpose computer once it is programmed to perform particular functions pursuant to instructions from program software.”).

And again at page 30:

“In this context, this court examines as well the contention that the software programming necessary to facilitate the invention deserves no patent protection or amounts to abstract subject matter or, in the confusing terminology of machines and physical transformations, fails to satisfy the “particular machine” requirement. This court confronted that contention nearly two decades ago in In re Alappat, 33 F.3d 1526 (Fed. Cir. 1994) (en banc). At that time, this court observed that “programming creates a new machine, because a general purpose computer in effect becomes a special purpose computer once it is programmed to perform particular functions pursuant to instructions from program software.” Id. At 1545.”

The CAFC, in accord with the SCOTUS’ directions on remand, also analyzes whether the method claims at issue amount to more than an abstract idea and concludes that they do. Explaining that “An abstract idea is one that has no reference to material objects or specific examples—i.e., it is not concrete.” By way of example, the decision provides a dictionary definition of “abstract” which indicates that “poetry” is abstract, while “a poem” is concrete.

The second CAFC panel presumes that “… the mere idea that advertising can be used as a form of currency is abstract…” (like poetry)  but concludes that the claimed method which “…forces consumers to view and possibly even interact with advertisements before permitting access to the desired media product…” renders the claims concrete (like a poem). The decision notes that “…the claimed invention purports to improve existing technology…”  and “…invokes computers and applications of computer technology…”.

This second decision concludes by saying that “…the claimed invention is not “so manifestly abstract as to override the statutory language of section 101.” [Research Corp., 627 F.3d at 869]”

The case is remanded to the district court for further proceedings, without opining on the patentability of the claimed invention under the substantive criteria set forth in §§ 102, 103, and 112.

Those readers that have been following the recent spate of § 101 patentability decisions from the CAFC and SCOTUS will notice the similarity between  the “manifestly abstract” language in this decision and the criteria the court employed in their original panel decision in CLS bank v Alice Corporation:

“…this court explained that the “disqualifying characteristic” of abstractness must exhibit itself “manifestly” “to override the broad statutory categories of patent eligible subject matter.”  Research Corp.,  627 F.3d at 868.”

Of course, in CLS bank v Alice Corporation the claims which were originally held to be patent eligible under §101 were deemed ineligible in an en banc rehearing following a remand from SCOTUS.

The reason for the apparent difference between the second panel decision in Ultramercial V Hulu and the CLS en banc decision may reside in the way the court viewed the claims in the context of Alappat.

The CLS en banc decision also refers to Alappat:

“The concept of reducing settlement risk by facilitating a trade through third-party intermediation is an abstract idea because it is a “disembodied” concept, In re Alappat, 33 F.3d 1526, 1544 (Fed. Cir. 1994) (en banc), a basic building block of human ingenuity, untethered from any real-world application. Standing alone, that abstract idea is not patent-eligible subject matter.”

 In CLS Bank the en banc court concluded that the method claims were abstract. 

Initially, that finding seems difficult to reconcile with the current decision in Ultramercial v Hulu. However, there is an important difference which those that practice the draftsman’s art would be wise to heed.

The method claims in Ultramercial's US 7,346,545 require concrete exchanges. A consumer requests to view a sponsor message (in lieu of payment for desired content). The sponsor message is displayed to the consumer (by a third party that is neither the owner of the content nor the sponsor). The sponsor subsequently pays the third party for each time the sponsor message is delivered.

Ironically, it seems to be the “business” nature of the claims at issue that got them over the § 101 threshold in Ultramercial v Hulu.

In contrast, the method claims at issue in CLS bank (US 5,970,479; claim 18) concludes with a “pricing and matching” step. This step has component sub-steps of “calculating”, “comparing” and “matching”. This means that, although a computer is involved, the claimed method relates to determination of relationship(s) between previously entered data sets. Presumably interested parties will see these relationships displayed and make a decision about whether or not to enter into a contract, but the claim itself does not include any commercial interaction between parties. Although the specification explains “The entitlement for each outcome can be in the form of `money` payoffs (both positive and negative) at maturity of a matched contract…” it also includes the proviso that “In the period between the match of a contract and maturity the various buyers, sellers and other contract stakeholders can review any contract to which they are a party and seek to trade that contract to other parties by the pricing and matching procedure, or variations on the pricing and matching procedure. They would tend to do so if their view of the future outcome of the phenomenon, being the subject of the contract, had changed markedly, or as a means to minimise expected losses if some unforseen adverse trend in the present day outcome of the phenomenon has occurred. As well as trading existing contracts, further contracts can be offered to `lay off` or avert risk. Stakeholder parties can build up a portfolio of matched contracts and offered contracts, which are continually traded to obtain the best possible position at any time, and that position can be continually reviewed with time.” Thus, it seems that the computer(s) are not really managing commercial transactions, rather they present suitable “matches” so that people can make subsequent decisions.

The system and computer readable media claims in CLS bank are similarly constructed. However, one might reason that expressing the same concepts as interrelated hardware components tethers them to a “real world application” as required by In re Alappat. The CAFC did not find this to be the case though.

The emerging trend from  CLS Bank and Ultramercial v Hulu seems to be that the State Street Bank criteria of “useful, concrete, and tangible result” which was the guiding principle in § 101 analyses prior to Bilski  is making a comeback. Of course, it would be naïve to think of this as a bright line rule.