In a case that could have huge financial repercussions for Internet services like Spotify, Hulu, Pandora, Kindle, and other Internet content providers, the Federal Circuit upheld a patent to a business method of providing copyrighted material for free in exchange for advertising access to consumers.

Again, the Federal Circuit’s Chief Judge Rader has upheld a patent in the face of one of the numerous § 101 challenges the Circuit has entertained, and again the answer was largely the same: You are unlikely to succeed on a broad 101 challenge, so please consider using another challenge more appropriate to your case.

The case, Ultramercial, LLC & Ultramercial, Inc. v. Hulu, decided Sept. 15, 2011, unanimously upheld claims to a method for distributing copyrighted products over the internet, in which the consumer “receives a copyrighted product for free in exchange for viewing an advertisement, and the advertiser pays for the copyrighted content.”  Id. at 2.  Chief Judge Rader, writing for the panel, found that the claims, while broad, were clearly patentable subject matter within the meaning of § 101.

First, Judge Rader declined to adopt a bright-line rule as to whether courts must first construe claims before determining § 101 subject-matter eligibility, or after.  Id. at 5.  He indicated that here, claim construction was not required to make a subject-matter determination because again (as the Circuit has stated in Classen, Research Co. Techs. v. Microsoft, and elsewhere, eligibility is a “coarse” filter.

Second, he again emphasized the broad scope of the patent laws means that the judicially created § 101 exceptions are merely “threshold check[s]” and that title 35 “does not list a single ineligible category, suggesting that any new, non-obvious, and fully disclosed technical advance is eligible for protection,” other than the three limited judicially created exceptions.  He then pointed to the Supreme Court’s mandate in Bilski that all should avoid “read[ing] into the patent laws limitations and conditions which the legislature has not expressed.” Id. at 7 (quoting Diamond v. Diehr, 450 U.S. 175, 182 (1981)).

Third, he explained that new technologies eschew rigid categories of invention, and thus the machine-or-transformation test had outlived its usefulness, thereby suggesting a loosening of the judicially created § 101 subject-matter limitations.  Id. at 7–9.

He found that, “While machine-or-transformation logic served well as a tool to evaluate the subject matter of Industrial Age processes, that test has far less application to the inventions of the Information Age. . . .Technology without anchors in physical structures and mechanical steps simply defy easy classification under the machine-or-transformation categories.”  Id. at 8.

Thus, the Circuit stated, “Because technology is ever-changing and evolves in unforeseen ways, this court gives substantial weight to the statutory reluctance to list any new, non-obvious, and fully disclosed subject matter as beyond the reach of title 35.”  Id.  Thus, the Circuit explained, these broad claims to an internet business method may be broad, they may be obvious, and they may be anticipated, but they are patentable subject matter under § 101.

Here, the “practical application” of the “abstract idea” that “advertising can be used as a form of currency” is patent-eligible.  Id. at 10.  That does not mean, the Circuit cautioned repeatedly, that it is patentable – only that it is patent-eligible.  See id. at 10, 11.

The message cannot get much clearer:  It is time to move beyond business method patent challenges under § 101 and attack these more abstract patents on other grounds (if at all).  Otherwise, years of wasted litigation fees may result, and patents that should be invalid for obviousness or lack of novelty will persist in the marketplace years longer than they otherwise would.

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