Image attributed to flickr user ePublicist, Yoel Ben-Avraham.

Internet and entertainment companies should rejoice.  The U.S. Court of Appeals for the Federal Circuit fit a square patent peg into a round cyberspace hole.  In Ultramercial v. Hulu, the Federal Circuit reversed a decision of the U.S. District Court for the Central District of California and held that a process for monetizing the transmission of data over the web using advertisements does not qualify for the abstract idea exception to patentability.  Many legal scholars were concerned that the Supreme Court’s decision in Bilski v. Kappos – upholding the rejection of a business method patent to hedge energy markets because hedging was an abstract idea – would eviscerate business method patents and potentially leave services in cyberspace without patent protections.  However, the Federal Circuit’s decision fits service innovations in cyberspace within the business method patent category.

Ultramercial claimed that Hulu and YouTube had infringed on Ultramercial’s patent that obligated internet viewers to watch or interact with commercials in a particular way.  The claim was dismissed by the district court because the court found that the claim did not contain patentable material.  The Federal Circuit reversed on the grounds that the patentable material was a “process” within the scope of 35 U.S.C. § 101.  In the ruling, Chief Judge Rader followed the ruling of Bilski and confirmed the relevance of the machine or transformation test to differentiate between “abstract ideas” and “processes,” but shied away from directly applying the test to the case at hand.  The opinion noted that the internet blurred the line between unpatentable abstract ideas and patentable processes, and suggested that traditional ideas such as the machine or transformation test – relevant in the Industrial Age – would not necessarily apply to the Information Age.  The court held that the method of advertising was a practical “application of an abstract idea” and could fit within the definition of a business method patent.  The court differentiated Ultramercial from Bilski, finding that the patent went beyond simply patenting a general idea of advertising, but instead listed the practical applications of how the idea involved computers and users.

Interestingly, the court did not completely abandon all elements of the machine or transformation test.  In a nod to In re Alappat – upholding a patent on computer software – dicta in Ultramercial emphasized how the involvement of computers with this process of on-line advertising strengthened arguments for patentability.  The court in Ultramercial highlighted the patentable nature of software explaining that “programming creates a new machine,” and placed software outside the realm of the mathematical algorithm or abstract concept exceptions to patentability.  The Chief Justice avoided requiring a particular level of computer involvement to determine whether a computer program or method could be patentable.  However, the ruling strongly supports patent protections for methods of delivering services via the Internet.

The line between abstract ideas and patentable business methods remains ambiguous in the context of cyberspace.  As of yet, courts have avoided overly technical analysis of how to determine which programming applications merit patentability and which ones do not.  However, this ruling allows business method patents applied to internet services to potentially provide a useful tool to protect innovators who develop mechanisms to monetize services on the internet.  Patenting these tools should support the creation of business models for cyberspace that will facilitate the medium of the internet to absorb the entertainment industry.

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