One of the worst patents ever just got upheld in court

June 24, 2013

Forget patenting an invention. These days, companies patent conceptual categories for future inventions.

During the first dot-com boom, Amazon famously patented the concept of buying things online with one click. More recently, companies have patented concepts such as scanning documents to an e-mail account, clearing checks electronically and sending e-mail over a wireless network.

(Photo by bloomsberries)
(Photo by bloomsberries)

The problem with these kinds of abstract patents is that lots of people will independently discover the same basic concept and infringe by accident. Then the original patent holder -- who may not have come up with the concept first, or even turned the concept into a usable technology -- can sue. That allows for the kind of abusive litigation that has been on the rise in recent years.

A lawsuit over an Internet advertising patent offered a key appeals court an opportunity to rein in these abstract patents. Instead, the court gave such patents its endorsement on Friday, setting the stage for rampant patent litigation to continue unchecked.

A firm called Ultramercial claims to have invented the concept of showing a customer an ad instead of charging for content. The company has sought royalties from a number of Web sites, including Hulu and YouTube. Ultramercial's patent isn't limited to any specific software algorithm, server configuration or user interface design. If you build a Web site that follows the general business strategy claimed by the patent, Ultramercial thinks you owe them money.

The Supreme Court has repeatedly held that abstract ideas cannot be patented. So one of Ultramercial's targets, a company called WildTangent, challenged the validity of the patent. But in a 2011 ruling, the U.S. Court of Appeals for the Federal Circuit, which hears appeals in all patent cases, sided with Ultramercial, holding that its patent is not too abstract to be patented.

In 2012, after striking down another abstract patent, the Supreme Court ordered the Federal Circuit to reconsider its 2011 decision.

On Friday, the Federal Circuit's three-judge panel stuck to its guns. Chief Judge Randall Rader, insisted that there was nothing abstract about Ultramercial's patent. After listing the steps claimed by the patent ("receiving media products from a copyright holder, selecting an advertisement to be associated with each media product, providing said media products for sale on an Internet website," and so forth), Rader wrote that "Even at this general level, it wrenches meaning from the word to label the claimed invention 'abstract.'" He notes that by upholding the patent, "there is no risk of preempting all forms of advertising, let alone advertising on the Internet."

"No risk of preempting all forms of advertising" is a rather permissive standard.

This week's decision is unlikely to be the last word on abstract patents. Another recent decision split the Federal Circuit down the middle, with some judges voting to uphold the patent and others voting to invalidate it. The 5-5 decision was over patents concerning computerized financial trading.

As patent scholar Mark Lemley put it on Twitter, "we've got two Federal Circuits on this issue, and it seems to depend on the luck of the draw." That kind of legal uncertainty can't last forever.

The fact that the Supreme Court asked the Federal Circuit to reconsider its earlier decision suggests that at least some of the justices are skeptical of Federal Circuit's position. The high court may be preparing to weigh in on the issue itself. And it takes a narrower view of what can be patented than the Federal Circuit does — the last three Supreme Court decisions on the subject all invalidated patents the Federal Circuit had approved. If the appeals court responsible for patent law won't rein in frivolous patenting, perhaps the Supreme Court will do the job itself.

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