By Vijay Kumar

The Federal Circuit recently issued its opinion for the Ultramercial v. Hulu case, further closing the door on patentees for what business methods qualify as being patent eligible under 35 § U.S.C. 101. Using the two-prong test outlined by the Supreme Court’s 2014 decision in Alice Corp. v. CLS Bank International, the Federal Circuit held that Ultramercial’s ‘545 patent did not claim patent-eligible subject matter. (The ‘545 patent covered a method for distributing copyrighted content over the Internet where the consumer receives the content for free in exchange for viewing an advertisement, and the advertiser pays for the content.) While not completely unexpected, the Ultramercial decision is important because it continues to stir up debate as to what software and Internet related methods are still eligible for patent protection. Following the decision, inventors, patent attorneys, and even patent examiners are still unsure of what type of claim limitations are required to overcome the §101 threshold.

Section 101 has enjoyed substantial debate over the last four years. Including the Bilski decision in 2010, the Supreme Court has taken up four subject matter eligibility challenges, “endeavoring to right the ship and return the nation’s patent system to its constitutional moorings.” Alice, 134 S. Ct. at 2357. The Court’s most recent patent-eligible decision, Alice, used a two-prong test to distinguish business method patents that claim abstract ideas from those that claim patent-eligible applications of those concepts. (We covered the Alice decision last summer.) The first prong of the test determines whether the claims at issue are indeed directed to an abstract idea. If they are, the second prong of the test then asks whether the claims do significantly more than simply describe that abstract idea. In other words, the additional features for the second prong’s analysis must be more than “well-understood, routine, conventional activity.” Alice clearly took away some of the patent-eligible grounds that were previously available to applicants. But more importantly, it also led to some confusion among patent practitioners and examiners at the U.S. Patent and Trademark Office (PTO) as to the patent-eligibility of certain business method patents for software and Internet-based patents.

Following Alice, the PTO issued Preliminary Examination Instructions in July 2014 for how patent examiners should analyze claims with computer-implemented abstract ideas in light of the Court’s decision. Although these instructions were helpful in explaining what is not patentable, they did not issue clear guidance on what is still patentable. Accordingly, since Alice, patent examiners have consistently rejected patent applications with software or Internet-based method claims. To no fault of their own, they have offered only conclusory statements that a particular claim is abstract, but no substantive analysis as to how an “abstract idea” is determined. As a result of this confusion, it appears the PTO has far exceeded the scope of Alice by rejecting nearly all business method patents, especially those dealing with software or the Internet.

The Ultramercial decision, while offering additional precedent, does not do much in the way of helping patent attorneys understand what kind of limitations are necessary to overcome a §101 rejection. While the court in Ultramercial did state that “use of the internet is not sufficient to save otherwise abstract claims from ineligibility under 101,” the questions that were raised following Alice still remain unanswered. Part of the reason for the boilerplate responses that have accompanied patent examiners’ §101 rejections may stem from Judge Mayer’s concurring opinion in Ultramercial, which stated that the “PTO has for many years applied an insufficiently rigorous subject matter eligibility standard.”

As stated in Ultramercial, the Federal Circuit doesn’t believe that “all claims in all software-based patents will necessarily be directed to an abstract idea.” However, it remains to be seen how exactly the PTO will interpret §101 rejections going forward and, more importantly, what types of business method claims will be allowed to pass the §101 threshold. Hopefully, the new guidelines that the PTO plans to issue, as well as new Federal Circuit cases (DDR Holdings v. Hotels.com) will bring more clarity to the patent community.