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Reconciling the CyberSource and Ultramercial Business Method Cases at the Federal Circuit

Posted Monday, October 24, 2011 by Mike Gibbons

“Business Method” patents have received a great deal of attention in the United States federal courts in recent years. The U.S. gives greater consideration to patents for business methods than do patent regimes in other countries. In Europe, for example, “programs for computers,” “mathematical methods” and “presentations of information” are all ineligible for patents per the European Patent Convention. Those three are all categories that could encompass what would be considered a business method in the United States.

Despite these prohibitions, the EPO (European Patent Office) has actually granted a number of patents that resemble business method patents. Similarly, in the United States, there is some inconsistency in exactly what has been held to be patent-eligible when it comes to business methods. Recently, this inconsistency has been playing out in the courts, and specifically in the Court of Appeals for the Federal Circuit (CAFC), the court with exclusive jurisdiction to hear patent appeals.

In August, the CAFC made a ruling on so-called “Beauregard claims,” in which a patent claim discloses a method and also recites a technological link. For example, the technological link could be that the method is encoded in software contained on a “computer-readable non-transitory medium.” In other words, if the patent claim discloses a process that is encoded in software, and the software is placed on a USB key, for example, then the thinking goes that since the USB key is a physical article, the claim is patent-eligible, being encompassed by 35 U.S.C. §101. That statute reads, in part, “Whoever invents … any new and useful process, machine, manufacture, or composition of matter, … , may obtain a patent therefor, subject to the conditions and requirements of this title.” Since the USB key with a piece of software on it is a new machine, the business method embodied in the USB key should be patentable, the logic goes.

That type of claim was among the claims considered in the CAFC’s August CyberSource v. Retail Decisions opinion. In brief, the business method at issue was a way of detecting fraudulent credit card transactions, including determining whether the transactions all come from the same Internet address. Writing for a three-judge panel including Judge Bryson and Judge Prost, Judge Dyk wrote that if the process includes strictly mental steps that could be performed without the use of a computer, the process is not patent-eligible even when the patent claim is a Beauregard claim (i.e. the patent claim recites the process being encoded in a USB key, or other manner of reciting some technological connection).

The panel found it was conceivable that one could determine whether several credit card transactions all came from the same Internet address without aid of a computer. Therefore, the process in question in CyberSource could be considered purely mental steps that didn’t require a computer in all circumstances. The opinion suggested that if the process was incapable of being performed without a computer, such as a process for locating a GPS satellite at an exact moment in time where the process includes thousands of computations per second, then that process embodied in a piece of hardware or software may be patent-eligible.

A month later, a different panel of judges at the CAFC considered the case of Ultramercial v. Hulu, in which a different business method was at issue. Ultramercial’s patent disclosed a process for permitting a viewer to watch a copyrighted video or otherwise consume content over the Internet once the viewer had watched an advertisement. Conceivably, without the aid of a computer, a person could consider whether a person had viewed an ad and then authorize that person to watch a video. By the rationale of the CyberSource decision from a month earlier, even though the patent claims in Ultramercial recited a technological link (here, permitting the consumer to watch the video over the Internet), the claims could rationally be vulnerable to being held patent-ineligible.

But in Ultramercial, a different three-judge CAFC panel held otherwise. In the opinion, drafted by CAFC Chief Judge Rader, the court held that the Ultramercial patent did not recite a series of purely mental steps, but rather, claims “a particular method for collecting revenue from the distribution of media products over the Internet.”

Since the claim at issue in Retail Decisions reciting “a method for verifying the validity of a credit card transaction over the Internet” was invalidated by the CAFC, but “a particular method for collecting revenue from the distribution of media products over the Internet” was held in Ultramercial to be valid, the holdings suggest the inconsistency regarding exactly what is a patent-eligible business method. From a patent-eligibility standpoint, what is the difference between “verifying the validity of a credit card transaction” and “collecting revenue from the distribution of media products” when both occur over the Internet?

I had the opportunity to hear Chief Judge Rader speak at a luncheon in Seattle for patent practioners the other day. He noted that the CAFC has now considered the patent-eligibility of business methods about six times since the Supreme Court handed down its 2010 Bilski v. Kappos ruling. Judge Rader suggested that if a patent claim includes a computer as part of its recitation, “that’s pretty close” to being patent-eligible all by itself.

Then, he addressed the possible inconsistency in the two recent cases discussed above. “CyberSource,” Judge Rader said, “was off-message.” He quickly added, “but it is a part of the message… CyberSource is the law of the Federal Circuit.” Those in the audience who were hoping for a clearer reconciliation of the two opinions didn’t receive one.

Still, one can look to Judge Rader’s discussion of the CyberSource case in his Ultramercial opinion. “The eligibility exclusion for purely mental steps is particularly narrow,” he wrote, with the word “purely” emphasized with italics. One might wonder whether Chief Judge Rader, in his capacity to assign the task of writing an opinion in a case to a particular judge, added the Ultramercial case to his own docket to have a chance to express a wider, more favorable view of the patent-eligibility of business methods.

Some believe that the panel of judges that CyberSource happened to draw was in part why the finding of invalidity of their patent was affirmed. Perhaps in light of Judge Rader’s comments in Ultramercial, CyberSource would fare better should their case be re-heard by the entire CAFC in an en banc review of the panel decision. If CyberSource seeks such an en banc review, we may see some further useful guidance on the patent-eligibility of business methods.

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