Light BulbAnother patent just failed the Supreme Court's airy test for unpatentable "abstract ideas".

A whiter shade of pale

Patents that define ways to make money through commerce on the Internet never have gotten much respect.

In the last year, a series of rulings by the Federal Circuit and the Supreme Court bled much of the remaining color out of the "business method" patents.

A new decision in an old case has now turned them an even whiter shade of pale.

Patent-eligible subject matter

Before we get there, let's review some recent history on the general question of patentable (or patent-eligible) subject matter.

As Blawgletter noted a couple of months ago, under section 101 of the Patent Act:

A patent must do more . . . than link a notion — however clever — to a device that carries it out. You need "something 'inventive' that somehow 'transforms' the unpatentable subject matter into something other than a law of nature, natural phenomenon, or abstract idea."

Blawgletter, Sept. 7, 2014, "Federal Circuit Forecloses Online-Guaranty Patent".

We also explained:

Section 101 of the Patent Act allows patents on "any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof". 35 U.S.C. 101. But, the Supreme Court has held, it does not make laws of nature, natural phenomena, or abstract ideas patentable. Ass'n for Molecular Pathology v. Myriad Genetics, Inc., 133 S. Ct. 2107, 2116 (2013). Those things "are the basic tools of scientific and technological work" and therefore fail section 101's test for patentable subject matter. Gottschalk v. Benson, 409 U.S. 63, 67 (1972).

Alice Corp.

Then we turned to the big business method patent case that the Supreme Court had decided a few months before, at nearly the end of its 2013-14 Term:

In Alice Corp. Pty. Ltd. v. CLS Bank Int'l, 134 S. Ct. 2347 (2014), the Court declined to adopt a per se rule against patents that involve "business methods", which some people maintained do nothing more than describe patent-ineligible ideas about how to engage in commerce. The Court nonetheless struck down Alice Corp.'s patent on "financial intermediation" as not "inventive" enough to "transform" the concept of having a third-party intermediate a business transaction into something more than an abstract idea. See Blawgletter, June 19, 2014, "You Still Can't Patent Ideas".

buySAFE v. Google

We went on to describe the Federal Circuit's ruling in the first post-Alice Corp. business methods patent case it decided:

In buySAFE, Inc. v. Google, Inc., No. 13-1575 (Fed. Cir. Sept. 3, 2014), the patent owner, buySAFE, accused Google's "Trusted Stores" feature of infringing buySAFE's patent on "Safe transaction guaranty". As the court described it, the patent claimed a method in which

(1) a computer operated by the provider of a safe transaction service receives a request for a performance guarantee for an “online commercial transaction”; (2) the computer processes the request by underwriting the requesting party in order to provide the transaction guarantee service; and (3) the computer offers, via a “computer network,” a transaction guaranty that binds to the transaction upon the closing of the transaction.

buySAFE, slip op. 3.

The patent didn't get beyond an abtract idea, the panel ruled:

The [patent] claims are squarely about creating a contractual relationship—a “transaction performance guaranty”—that is beyond question of ancient lineage. See Willis D. Morgan, The History and Economics of Suretyship, 12 Cornell L.Q. 153 (1927). The dependent claims’ narrowing to particular types of such relationships, themselves familiar, does not change the analysis. This kind of narrowing of such long-familiar commercial transactions does not make the idea non-abstract for section 101 purposes. . . . The claims thus are directed to an abstract idea.

buySAFE, slip op. 9.

Nor did invoking the use of computers or limiting the claims to online transactions supply the necessary transformation of an abstract idea in an inventive way. Such "narrowing has long been held insufficient to save a claim in this context." Id.

The new old case — Ultramercial, Inc. v. Hulu, LLC, No. 10-1544 (Fed. Cir. Nov. 14, 2014)

Ultramercial describes itself as "a technology company offering patented financial engines for monetizing online content". What does its financial engines do? They allow "users [to] watch our ad to get free content that otherwise would cost money."

Ultramercial sued Hulu — which calls itself "a premium streaming TV destination" — for infringing a patent "directed to a method 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 copyrighted content." Ultramercial, slip op. at 3.

The district court dismissed Ultramercial's case on the ground that the patent claimed patent-ineligible subject matter. The Federal Circuit reversed the dismissal, but the Supreme Court vacated its ruling. On remand, the court of appeals again reversed, and the Supreme Court again vacated and remanded.

The third time proved the charm for Hulu. This time the panel affirmed the dismissal, holding that under the test of Alice Corp. the Ultramercial patent did nothing more than claim an abstract idea:

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.

Ultramercial, slip op. at 11.

[Curiously, the panel did not mention the decision in buySAFE. The court's mandate in that case issued on October 10. We cannot explain it.]

Blistering concurrence

One of the panel members wrote a stinging concurrence. He summarized his views thus:

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.

Ultramercial, concurring op. at 1.

"Technological arts test"

His development of his last point — the most interesting one — warrants full reproduction:

Alice recognized that the patent system does not extend to all products of human ingenuity. 134 S. Ct. at 2358–60; see also [Ass’n for Molecular Pathology v. Myriad [Genetics, Inc., 133 S. Ct. 2107,] 2117 [(2013)] (“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. 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.

In Bilski[ v. Kappos, 561 U.S. 593 (2010)], 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. An idea is 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 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[ Collaborative Services, Inc. v. Prometheus Laboratories, Inc.], 132 S. Ct. [1289,] 1303 [(2012)]; see Motion Picture Patents[ Co. v. Universal Film Mfg. Co.], 243 U.S. [502,] 513 [(1917)] (“[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.

Ultramercial, concurring op. at 7-11.

Need for close review

Only the rare business method patent will get through the filter that the Federal Circuit and Supreme Court have fashioned for cases involving what they deem abstract ideas.

If you have a patent that describes a way to do commerce online, make sure you show it to someone who knows how to evaluate it properly. That may save both you and your counsel much expense and even more heartache.

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Photo of Barry Barnett Barry Barnett

Clients and colleagues call Barry Barnett an “incredibly gifted lawyer” (Chambers and Partners) who is “magic in the courtroom” (Who’s Who Legal), “the top antitrust lawyer in Texas” (Chambers and Partners), and “a person of unquestioned integrity” (David J. Beck, founder of Beck…

Clients and colleagues call Barry Barnett an “incredibly gifted lawyer” (Chambers and Partners) who is “magic in the courtroom” (Who’s Who Legal), “the top antitrust lawyer in Texas” (Chambers and Partners), and “a person of unquestioned integrity” (David J. Beck, founder of Beck Redden).

Barnett is a Fellow in the American College of Trial Lawyers, and Lawdragon has named him one of the top 500 lawyers in the United States three years in a row. Best Lawyers in America has honored him as “Lawyer of the Year” for Bet-the-Company Litigation (2019 and 2017) and Patent Litigation (2020) in Houston. Based in Texas and New York, Barnett has tried complex business disputes across the United States.

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Barnett has been historically recognized for his effectiveness and judgment. His peers chose him, for example, to the American College of Trial Lawyers and American Law Institute. His decades of trial and appellate work representing both plaintiffs and defendants have made him a master strategist and nimble tactician in complex disputes.

Barnett focuses on enforcement of antitrust laws, the “Magna Carta of free enterprise,” in Supreme Court Justice Thurgood Marshall’s memorable phrase. “Barry is one of the nation’s outstanding antitrust lawyers,” according to Joseph Goldberg, a member of the Private Antitrust Enforcement Hall of Fame. Named among Texas’s top ten antitrust lawyers of 2023, Business Today calls Barnett a “trailblazer” among the “distinguished legal minds” who “dedicate their skill and expertise to the maintenance of healthy competition in various sectors” of the Lone Star State’s booming economy. Barnett is also adept in energy and intellectual property matters and has battled for clients against a Who’s Who list of corporate behemoths, including Abbott Labs, Alcoa, Apple, AT&T, BlackBerry, Broadcom, Comcast, Dow, JPMorgan Chase, Samsung, and Visa.

Barnett commands a courtroom with calm and credibility and “is the perfect lawyer for bet the company litigation,” said Scott Regan, General Counsel of former client Whiting Petroleum. His performance before the Supreme Court in Comcast Corp. v. Behrend prompted the Court to withdraw the question on which it had granted review. The judge in a trial involving mobile phone technology called Barnett “one of the best” and that his opening statement the finest he had ever seen. Another trial judge told Barnett minutes after a jury returned a favorable verdict against the county’s biggest employer that he was one of the two best trial lawyers he’d ever come across—adding that the other one was dead.

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Clients and other hard graders have praised Barnett for his courtroom skills and legal acumen.

A client in a $100 million oil and gas case, which Barnett’s team won at trial and held on appeal, said Barnett and his team “presented a rare combination of strong legal intellect, common sense about right and wrong, and credibility in the courtroom.” David McCombs at Haynes and Boone said Barnett “has a natural presence that goes over well with juries and judges.”

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Barnett relishes opportunities to collaborate with all kinds of people. At the Center for American and International Law (CAIL), founded by a former prosecutor at Nuremberg in 1947 and headquartered in the Dallas area, he has served on the Executive Committee, co-chaired the committee that produced CAIL’s first-ever strategic plan, supported CAIL’s Institute for Law Enforcement Administration and other development efforts, and proposed formation of a new Institute for Social Justice Law. CAIL’s former President David Beck said “Barry is extremely bright” and is “very well prepared in every lawsuit or professional task he undertakes.”

Barnett is also a Trustee of the New-York Historical Society, a Sterling Fellow at Yale, a member of the Yale University Art Gallery’s Governing Board, a winner of the Class Award for his work on behalf of his college class, and a proud contributor to the Yellow Ribbon Program at Harvard Law. Barnett’s pro bono work includes leading the trial team representing people who are at greatest risk of severe illness and death as a result of being exposed to the novel coronavirus SARS-CoV-2 while being detained in the Dallas County jail—work for which he received the NGAN Legal Advocacy Fund RBG Award.

At Susman Godfrey, Barnett has served on the firm’s Executive Committee, Employment Committee, and ad hoc committees on partner compensation, succession of leadership, and revision of the firm’s partnership agreement. He also twice chaired the Practice Development Committee.

Barnett understands that clients face many pressures. Managing the stress is important, especially in matters that take years to resolve. He encourages clients to call him whenever they have a question or concern and to keep the inevitable ups and downs in perspective. He wants them to know that he will do his level best to help them achieve their goals. He also strives to foster trust and to make working with him a pleasure.

Cyrus “Skip” Marter, the General Counsel of Bonanza Creek in Denver and a former Susman Godfrey partner and client, said Barnett is “excellent about communicating with clients in a full and honest manner” and can “negotiate for his clients from a position of strength, because he is not afraid to take a case through a full trial on the merits.” Stacey Doré, the President of Hunt Utility Services and a former client, said that Barnett is “an excellent trial lawyer and the person you want to hire for your bet-the-company cases. He is client focused, responsive, and uniquely savvy about trial and settlement strategy.” A New York colleague said, “Barry is a joy to work with as co-counsel. He tackles complex procedural and factual hurdles capably, efficiently, and without drama.”

Barnett’s wide-ranging experience and calm, down-to-earth approach enable him to connect with clients, judges, jurors, witnesses, and even opposing counsel. He grew up in Nacogdoches, Texas. He co-captained his high school varsity football team as an All-East Texas middle linebacker while also serving as the Editor of Key Club’s Texas-Oklahoma District, won the Best Typist award, took the History Team to glory, and sang in the East Texas All Region Choir. As Dan Kelly of client Vistra Corp. put it, Barnett is “a great person to be around.”

Barnett is steady and loyal. He has practiced at Susman Godfrey his entire career. He and his wife Nancy live in Dallas and enjoy spending time in Houston and New York. Their daughter works for H-E-B in Houston, and their son is a Haynes and Boone transactions lawyer in Dallas.

As a member of Ivy League championship football teams in his junior and senior years at Yale and a parent of two Yalies, Barnett has no trouble choosing sides for “The Game” in November. And he knows how important fighting all the way to the end is. On his last play from scrimmage, in the waning minutes of The Game on Nov. 22, 1980, he recovered a Crimson fumble.

Yale won, 14-0.