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.