Concurrence in Federal Circuit’s “Ultramercial” Ruling Sends Pointed Message to Patent Litigants

Kaminski_Jeffri_LRFeatured Expert Contributor – Intellectual Property (Patents)

Jeffri A. Kaminski, Venable LLP

The recent Federal Circuit decision in Ultramercial v. Wild Tangent continues the trend of courts invalidating software and business method patents made vulnerable by the Supreme Court’s decision in Alice Corp. v. CLS Bank International. The Ultramercial decision also continues the wave of “patent reform” in the courts, at the Patent Office, and in Congress. Software and business method patent owners and applicants should be concerned by these recent developments, and alleged infringers should be encouraged. The concurring opinion by Judge Mayer describes how an early determination of patent eligibility during litigation may help stem “[t]he scourge of meritless infringement claims [that] has continued unabated for decades.”

The Federal Circuit invalidated Ultramercial’s patent as being directed to an abstract idea, which is not patentable subject matter under 35 U.S.C. § 101. The asserted patent, U.S. Patent No. 7,346,545 (“the ’545 Patent”), is optimistically titled, “Method and system for payment of intellectual property royalties by interposed sponsor on behalf of consumer over a telecommunications network.” The main patent claim includes eleven specific steps for displaying an advertisement in exchange for access to copyrighted media. However, the appellate court determined that the patent “describes only the abstract idea of showing an advertisement before delivering free content” and is therefore invalid.

In spite of the eleven steps enumerated in the method claim, the court held that merely adding additional routine steps to an abstract idea “does not transform an otherwise abstract idea into patent-eligible subject matter.” Furthermore, although the claims of the ’545 Patent were tied to a general purpose computer, “adding a computer to otherwise conventional steps does not make an invention patent-eligible” either.

Alleged infringers should be encouraged to challenge patent eligibility of software and business method patents early in the litigation. Successful challenges to patent eligibility can avoid the cost and intrusion of discovery and litigation. In a concurring opinion, Judge Mayer states that “whether claims meet the demands of Section 101 is a threshold question, one that must be addressed at the outset of litigation.” Deciding the issue of patentable subject matter at the outset of the case serves as a bulwark against meritless patent claims. In fact, the concurrence states that proceeding with a case in which there is a Section 101 issue may “constitute an impermissible advisory opinion.” Many district courts, including those in the patent litigation hotbeds of the District of Delaware and the Eastern District of Texas, are already amenable to early challenges under Section 101. The concurrence, while not binding on the district courts, clearly endorses this course of action, which may encourage other jurisdictions to follow suit.

Judge Mayer also asserts that there should be no presumption of patent validity for these 101 challenges because the Patent Office “has for many years applied an insufficiently rigorous standard subject matter eligibility standard.” Many patents being asserted today were examined by the Patent Office more than 15 years ago under eligibility standards that are now outdated. Thus, no deference should be given to the Patent Office’s patent eligibility determination in litigation now. Currently, a plaintiff asserting its patent in litigation can waive the issued patent document, dressed in its official ribbon and a seal from the Patent Office, in front of a district court judge or jury composed of lay people, and emphasize that Patent Office examiners with expertise in the subject matter already approved the patent. However, if the presumption of validity were eradicated, patent owners could no longer hide behind the Patent Office seal of approval, and the likelihood of a patent being found invalid would greatly increase.

Patent owners and those asserting software and business method patents should take heed of Judge Mayer’s concurring opinion. Patent owners should read the patent claims with a pragmatic eye before filing suit. Unreasonable and untenable interpretations of the claims are not looked upon favorably by busy district court judges. As noted in our prior post, under the newly lowered standard for “exceptional” conduct set forth in Octane Fitness, LLC v. Icon Health & Fitness, Inc., there have been many instances of courts awarding costs and fees against patent owners for stretching the interpretation of the claims to cover the defendants’ products. Courts will likely take a similarly dim view of stretching the claims to comply with Section 101. Therefore, patent owners should consider whether to risk having to pay fees and costs under Octane Fitness before filing suit.

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