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Advertising-Based Content Distribution Patent Fails Bilski Test in District Court

By Peter Zura

Ultramercial, LLC v. Hulu LLC, No. CV 09-06918 (C.D. Cal., August 13, 2010)

Ultramerical brought suit against Hulu for alleged infringement of a patent directed to distributing copyrighted products over the Internet.  Specifically, the ('545) patent allows Internet users to view copyrighted material free of charge in exchange for watching certain advertisements.  A computer or a server acts as a gateway between the Internet user and the copyrighted material. An advertisement sponsor may purchase advertising space for a particular copyrighted material (e.g., TV show). Upon attempting to stream a ?free? television show episode, for example, the Internet user will be presented with advertisement. The user cannot view the copyrighted material until the ad is fully displayed.

After reviewing the claims, the district court held the patent invalid for non-statutory subject matter under Bilski.

The "Machine-or-Transformation" Test:

It is important to note, however, that even after the Supreme Court?s decision in Bilski, the machine or transformation test appears to have a major screening function?albeit not perfect? that separates unpatentable ideas from patentable ones. Indeed, four of the Justices, listed on Justice Stevens?s concurring opinion, would have taken the machine or transformation test to its logical limit to hold that business methods are categorically unpatentable. . . . Joining a concurring opinion, Justice Scalia . . . would agree with Justice Breyer that ?not [] many patentable processes lie beyond [the] reach [of the machine or transformation test].? . . . In sum, at least five (and maybe all) Justices seem to agree that the machine or transformation test should retain much of its utility after the Supreme Court?s decision in Bilski. Therefore, even though the machine or transformation is no longer the litmus test for patentability, the Court will use it here as a key indicator of patentability.

The "Machine" Prong:

The parties agreed 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.?

The Court finds that none of the three satisfy the machine prong of the test . . . there is no reason to read ?facilitator? as a machine such as a computer. Indeed, the patent specification suggests the contrary: the schematics in the patent specification depict the facilitator as a person. Moreover, the ?545 patent explains that the facilitator may ?communicate through . . . telephony, facsimile, courier, mail or even person-to-person meeting.? The specification makes it clear, therefore, that the ?545 patent is not aimed at a computer-specific application; it is a broad claim to the concept of exchanging media for advertisement viewing.

Neither does the ?Internet? recitation save the patent. First, this Court agrees with the District Court in the Northern District of California that held the Internet is not a machine. CyberSource Corp. v. Retail Decisions, Inc., 620 F. Supp. 2d 1068 (N.D. Cal. 2009) (?[T]he Internet is an abstraction.? ?One can touch a computer or a network cable, but one cannot touch ?the internet.??).

Finally, the mere act of storing media on computer memory does not tie the ?545 invention to a machine in any meaningful way. Since Plaintiff does not argue this point, the Court will not address it in detail. It suffices to say, however, that the argument would have been too farfetched and hence futile.

"Transform an Article" Prong:

There can be little dispute that the ?545 patent does not transform an article. . . . None of the patent claims disclose a transformation. . . . [T]he mere transfer of data from one memory disk on one computer to another memory space in a second computer is not ?transformation of article? under § 101. And the parties have not pointed out a case that held otherwise.  That is not surprising: the nature of the computer memory does not vary based on what is stored in it.  And even if storing content on a computer memory constituted transforming an article, Plaintiff?s argument would still fail because such ?transformation? is merely incidental to the ?545 patent claims.

Read/download a copy of the opinion here (link)

Full post as published by Two-Seventy-One Patent Blog on August 24, 2010 (boomark / email).