Background
Ultramercial’s patent (U.S. Patent No. 7,346,545) covered a method for distributing copyrighted content over the Internet by having consumers watch an advertisement in exchange for free access to the content — essentially the pay-with-your-attention model that underpins streaming and content platforms. Ultramercial sued Hulu, YouTube, and WildTangent for infringement.
This was the patent’s third trip through the Federal Circuit. In 2011, the Federal Circuit reversed the district court’s § 101 dismissal. The Supreme Court vacated and remanded in light of Mayo (2012). In June 2013, the Federal Circuit again reversed the dismissal, with Chief Judge Rader writing that the eleven-step Internet-based method was sufficiently concrete. The Supreme Court then vacated a second time following Alice (June 2014) and again remanded. With Alice now firmly in place, the Federal Circuit reconsidered once more.
The Court’s Holding
Judge Lourie, writing for the unanimous panel, affirmed dismissal and held the patent invalid under § 101. Applying the Alice two-step framework, the court found the patent directed to an abstract idea at step one: the concept of using advertising as a form of currency — giving away content in exchange for watching a commercial — is a fundamental economic practice that predates the Internet entirely. Television had operated this way for decades; radio before that.
At step two, the eleven specific steps in the claimed method added no inventive concept. Each step — selecting media, setting payment terms, presenting ads, monitoring viewership, allowing access upon completion — described conventional, routine activities. The steps were not meaningfully limited to any particular technical implementation; they could be performed by a human without a computer. Adding the label “Internet” and specifying a general computing environment did not transform the abstract concept into a patent-eligible invention under Alice.
Judge Mayer concurred but wrote separately to argue that patent eligibility should be treated as a threshold issue disposed of early in litigation, and that § 101 should be read more restrictively to exclude all software business method patents.
Key Takeaways
- Ultramercial III completed the longest Federal Circuit § 101 saga of the Alice era — a patent that survived twice was ultimately invalidated after Alice provided a stable framework.
- Enumerating steps in a business method claim does not make the claim patent-eligible if each step is itself abstract, generic, or routine.
- The decision confirmed that Alice applies with full force to multi-step Internet method patents, not just bare computer-based financial processes.
- The ad-for-content model — the foundation of most free Internet services — is an abstract concept incapable of being patented, no matter how many steps are listed to describe its implementation.
Why It Matters
Ultramercial’s journey is a defining story of the Alice era. The case illustrated both how dramatically § 101 doctrine shifted between 2011 and 2014, and how that shift exposed patents that had previously survived scrutiny. The same patent, filed by the same company, before many of the same Federal Circuit judges, reached opposite results in 2011-2013 versus 2014 — not because the patent changed, but because the legal framework did.
For the Internet economy, Ultramercial III confirmed that the basic business models underlying free, ad-supported digital services cannot be patented. This conclusion has practical significance: it means that the next startup to build an ad-supported streaming service cannot patent the core concept, keeping the market open to competition. But it also signals that patents covering the specific technical implementations of those services — the algorithms, the encoding, the delivery infrastructure — may be where real patent value lies.