02 September 2010

Internet Advertising is an Abstract Idea says US District Court

On 13 August 2010, a Los Angeles District Court found patent US 7,346,545 invalid in view of the US Supreme Court's Bilski v. Kappos opinion. The patent relates to delivering of copyrighted media products (e.g. audio or video data) through a computer or server to internet users free of charge in exchange for watching advertisements.

The patent holder, a company named Ultramercial, had sued Hulu and WildTangent for patent infringement, while the defendants filed a motion to dismiss, arguing that the patent neither disclosed nor claimed patentable subject matter. As reported on Patent Litigation Weekly, Ultramercial had argued that the defendants infringed the patent, because they kept copyrighted content in the form of videos or games behind a wall that could only be bypassed after watching an advertisement. Relying on such ad walls has become fundamental to the business model that online video sites like Hulu and YouTube use (see also report on IP Spotlight and the 271 Patent blog).

The decision Ultramerical v. Hulu (Central District of California, CV 09-06918) is said to be the first patent lawsuit that was decided based on the grounds of the Bilski ruling (see earlier posts here and here).

After the Bilski opinion, according to which the machine-or-transformation test is not the only test for assessing patent eligibility and abstract ideas are not patentable at all, some have interpreted Bilski to completely reject the machine-or-transformation test, while others thought that the decision backed an extensively liberal approach on software and business method patenting, which would also legitimate granting claims like those of the Ultramerical's patent.

In fact, Ultramerical v. Hulu clearly shows that in the post-Bilski era the machine-or-transformation test still plays an important role and that there still exists subject-matter that is not patent-eligible even though it might be regarded novel and non-obvious. The Supreme Court’s Bilski opinion apparently was not the kind of “triumphus” some US software and business method advocates thought it was.

According to claim 1 of the ‘545 patent, a “method for distribution of products over the Internet via a facilitator” comprises the following steps:
  1. receiving, from a content provider, media products that are covered by intellectual-property rights protection [...];
  2. selecting a sponsor message to be associated with the media product, […];
  3. providing the media product for sale at an Internet website;
  4. restricting general public access to said media product;
  5. offering to a consumer access to the media product without charge to the consumer on the precondition that the consumer views the sponsor message;
  6. receiving from the consumer a request to view the sponsor message [...];
  7. facilitating the display of a sponsor message to the consumer […];
  8. allowing said consumer access to said media product [...], if the sponsor message is not an interactive message;
  9. presenting at least one query to the consumer and allowing said consumer access to said media product [...], if the sponsor message is an interactive message;
  10. recording the transaction event to the activity log, [...] including updating the total number of times the sponsor message has been presented; and
  11. receiving payment from the sponsor of the sponsor message displayed.
To reject the claims, the District Court applied a two-stage approach in that it first applied the Federal Circuit's machine-or-transformation test and then checked for the Supreme Court's abstract idea approach.

Machine or Transformation: According to the Court's first-stage argumentation, “the machine or transformation test appears to have a major screening function – albeit not perfect – that separates unpatentable ideas from patentable ones”, so that “even though the machine or transformation is no longer the litmus test for patentability“ it was used in the present case “as a key indicator of patentability“.

In the end, the Court found that the patent did not meet the requirements of the test, since “the Internet is not a machine”, “the mere act of storing media on computer memory does not tie the invention to a machine in a meaningful way”, and the “mere transfer of data” is not a  transformation of an article.

As to the “machine” prong, in detail, the District Court argued that
there were only three points identified as a possible reference to a machine. One independent claim recited a “method for distribution of products over the Internet via a facilitator,” while a dependent claim recited "wherein media product accessed by the consumer is downloaded to a memory of a personal computer of the consumer”, [whereas] none of the three satisfy the machine prong of the test.

[T]here is no reason to read “facilitator” as a machine such as a computer [, especially since] the patent specification suggests […] the facilitator as a person. The specification makes it clear, therefore, that the ‘545 patent is not aimed at a computer-specific application [but] is a broad claim to the concept of exchanging media for advertisement viewing.

Neither does the “Internet” recitation save the patent [, since] this Court agrees with the District Court in the Northern District of California that held the Internet is not a machine [but] an abstraction [, as ] one can touch a computer or a network cable, but one cannot touch ‘the internet (CyberSource Corp. v. Retail, 2009).

Finally, the mere act of storing media on computer memory does not tie the ‘545 invention to a machine in any meaningful way.
Abstract idea: In the second-stage argumentation, the Court found the claims to be similar to those found to be an abstract idea in Bilski v. Kappos:
At the core of the patent is the basic idea that one can use advertisement as an exchange or currency. An Internet user can pay for copyrighted media by sitting through a sponsored message instead of paying money to download the media. This core principle, similar to the core of the Bilski patent, is an abstract idea. Indeed, public television channels have used the same basic idea for years to provide free (or offset the cost of) media to their viewers. At its heart, therefore, the patent does no more than disclose an abstract idea.
As opposed to the Court’s opinion, Ultramercials' lawyer (Richard Frenkel of WSGR) argued that by "gating" the distribution of copyrighted content, the claimed subject-matter passed the machine-or-transformation test because the claims transformed copyrighted content from being physically inaccessible to an online consumer to being physical accessible, so that the patent would easily satisfy the transformation prong.

Further remarks: While the Court found that the '545 patent wasn't concretely limited to a computer-specific application (“it is a broad claim to the concept of exchanging media for advertisement viewing”) and that performing an already-known process over the Internet does not make an otherwise unpatentable idea patentable, Steve Lundberg of the patents4software blog couter argues that the claimed invention is both expressly claimed as method for distribution of products over the Internet and clearly and unequivocably limited to be used with the Internet, an Internet web site and interactive messages. Mr Lundberg identified that the big problem of this case is that it's
abstract idea death-ray appears capable of killing any invention where a key concept can be labelled ‘abstract’ even if the invention is clearly limited to an electronic implementation and even if the electronic implementation is central to the idea, as it was in this case.
It is assumed that the ruling will likely be reviewed by the Federal Circuit on appeal. The District Court explained its motivation to grant the motion to dismiss in that, 
given the lack of clarity in this area of patent law, it is perhaps even more appropriate for this Court to render its decision at the earliest stage so that the parties may benefit from the Federal Circuit’s guidance on the issue sooner rather than later, if they so desire.
By the way, the Roman “triumphus” was a religious rite of ancient Rome that later turned into a civil ceremony to publicly celebrate and sanctify an army general who had successfully completed a foreign war. To better celebrate the triumph, a monument was sometimes erected, such as the Arch of Titus (see detail above) or the Arch of Constantine in the Forum Romanum.

Originally the triumph was a pure sacral act in which the victorious commander fulfilled vows he had made to the gods before the war, cleaned himself and his army of the curse of war by a worship service, and sacrificed Jupiter. In Republican Rome, the triumph was more and more transformed into an honorary celebration for the victorious general, who became a vir triumphalis (“man of triumph”) that was connected to Rome's mythical past and ritually elevated to near-divine or near-kingly status for the day of the triumph at which he wore the regalia traditionally associated both with the ancient Roman monarchy and with the statue of Jupiter Capitolinus. Thereafter, he retained the right to be named vir triumphalis for the rest of his life.