Netflix, Amazon, and Hulu Prevail Over Abstract Idea

Last month the Federal Circuit affirmed the Northern District of Florida Tallahassee Division's grant of Netflix, Amazon, and Hulu's motion to dismiss a patent infringement suit brought by Digital Media Technologies, Inc.

Netflix, Amazon, and Hulu prevailed on their argument that the system claimed in Digital Media Technologies' patent was not eligible for patent protection because it was an abstract idea. This article provides an overview of the District Court's analysis.

In 2016, Digital Media Technologies, Inc. brought a patent infringement suit against Netflix, Amazon, and Hulu, alleging infringement of a patent directed to easy downloading of video/audio and other content from the internet or data network and reliable content protection incorporating DVRs ("digital video recorders"). For example, as to Netflix, Digital Media Technologies' main allegation was that "[Netflix] has in the past and continues to infringe [the claims] of the '764 Patent[.] Defendant's direct infringing acts include, but are not necessarily limited to, Defendant's use, offering for sale, and sale of Defendant's Content Delivery Service and system []." Digital Media Technologies, Inc. v. Netflix, Case No. 4:16cv243-MW/CAS Dkt No. 1 at 3 (N.D. Fla. 2017).

The Claim

Netflix, Amazon, and Hulu moved to dismiss the complaint in an identical motion filed in each of the cases against them (see Digital Media Technologies, Inc. v. Netflix, Case No. 4:16cv243-MW/CAS Dkt No. 15, n. 1) for failure to state a claim on the basis that the patent was ineligible for protection under 35 U.S.C. § 101. Specifically, the defendants argued that the patent claimed "the abstract idea of limiting access to content to authorized users." See Digital Media Technologies, Inc. v. Amazon, Case No. 4:16cv244-MW/CAS Dkt No. 72 at 6 (N.D. Fla. 2017)*

*The Court's decisions in each case are identical with the exception of the descriptions of the parties. Unless noted otherwise, citations in this article are to the Court's decision in Amazon's case 4:16cv244-MW/CAS.*

The patent at issue 8,964,764, "Multimedia Network System with Content Importation, Content Exportation, and Integrated Content Management" had one independent claim:

The Northern District of Florida created an example of "real world" application to clarify the content of the claims. In the example, fictional content consumer Anna (client) uses her favorite video-on-demand provider to watch a copyrighted movie (protected content) on her tablet (client device). Anna connects with the provider's server, where the movie is stored, via the internet (wide area network). The movie begins to load on Anna's tablet from Anna's perspective while in the background, several steps occurred:

• The provider's server received a request from Anna's tablet that the movie be sent to the tablet
• The provider's server received authentication information from Anna's tablet to ensure the tablet was an authorized device and Anna was an authorized user
• The provider's server validated the authentication information
• The provider's server sent the location of the movie to Anna's tablet
• The provider's server received a request for a content license
• The provider's server encrypted the content license and sent it to Anna's tablet
• The provider's server received a request for the movie from Anna's tablet
• Anna's tablet decrypted the content license, which contained a content key and usage parameters
• Anna's tablet used the content key to decrypt the movie

Now, Anna can watch the movie pursuant to the usage parameters (for example, she can only watch the movie within a 24-hour time period, or can only watch it twice). Digital Media Technologies, Inc. at 4-5.

What is an Abstract Idea?

Netflix, Amazon, and Hulu argued that this claimed system was an abstract idea, and therefore not eligible for patent protection. As a brief overview, not every invention is patentable. Under 35 U.S.C. § 101, "whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title." There are a number of judicial exceptions to patentability--these are things that are not patentable. Abstract ideas, laws of nature, and natural phenomenon are not patentable. They are "basic tools of scientific and technological work" and the Supreme Court views monopolizing these "basic tools" as impeding rather than promoting innovation. MPEP § 2106. So what is an abstract idea? There are numerous examples established via case law, and which the USPTO has issued guidance upon in its USPTO's July 2018 Reference Sheet. Some examples are:

• Fundamental Economic Practices e.g. mitigating settlement risk
• Methods of Organizing Human Activity e.g. a mental process a neurologist should follow when testing a patient for nervous system malfunctions
• An Idea "Of Itself" e.g. concepts relating to data comparisons that can be performed mentally or are analogous to human mental work, such as collecting and comparing known information
• Mathematical Relationships/Formulas e.g. calculating the difference between local and average data values

While abstract ideas themselves cannot be patented, a claim that involves an abstract idea is not inherently ineligible for patenting, and may be patentable if it is an application of an abstract idea "to a new and useful end." Digital Media Technologies, Inc. at 7. Courts make this distinction in a two-step test set forth by the Supreme Court in Alice Corp. Pty., v. CLS Bank Int'l 134 S. Ct. 2347 (2014): (1) is the claim directed to an abstract idea? (2) if so, does the claim contain an "inventive concept" sufficient to "transform" the claimed abstract idea into a patent-eligible application? Digital Media Technologies, Inc. at 7.

"One could say this case is about a patent that claims too much and a legal test that provides too little." Id. at 9, n. 7.

The Northern District of Florida's Analysis

At the outset of its analysis, the Court made a point to express its concern about the lack of clarity as to the level of abstraction courts should employ at step one, noting that Digital Media Technologies' patent could be construed at a high level as the "abstract idea of secured content-delivery" and at a lower level as the "abstract idea of delivering content secured with licenses and encryption." Digital Media Technologies, Inc. at 9. The Court ultimately chose the latter characterization. Id. at 15.

"The pitfall of this type of analysis is that a reviewing court can essentially find any patent abstract because it is that same court that chooses how broadly to define the patent." Id. at 10.

Giving little more analysis as to the first step of the test, the Court found it sufficient to hold that the '764 patent is directed to an abstract idea at step one and "defer consideration of the specific claim limitations' narrowing effect for step two." Digital Media Technologies, Inc. at 10.

At step two, in order for the claim to recite an inventive concept, the claim limitations must "consist of more than well-understood, routine, and conventional activity." Digital Media Technologies, Inc. at 11. The Court cited several cases holding that limitations similar to those described in the '764 claim's limitation did not consist of "more":

• Generic recitations of communications between servers and clients. Fitbit, Inc v. AliphCom, No. 15-cv-04073-EJD, 2017 WL 528491, at 8 (N.D. Cal. 2017)
• Controlling access to information by verifying credentials. OpenTV, Inc. v. Apple Inc., No. 5:15-cv-02008-EJD, 2016 WL 344845 at 5 (N.D. Cal. 2016)
• Incorporating asymmetric/public-key encryption in an authentication system. Kinglite Holdings Inc. v. Micro-Star Int'l Co. No. CV 14-03009 JVS(PJWx), 2015 WL 6437836 (C.D. Ca. 2015)
• Application of licenses or rules to control content usage. Uniloc USA, Inc. v. Amazon.com, Inc., No. 2:16-CV-00570, 2017 WL 1049595 (E.D. Tex. 2017)

Digital Media Technologies, Inc. at 11-12. Given that the limitations of the '764 claim were not inventive, the Court next determined whether the ordered combination of the claim limitations supplied an inventive concept, because "an inventive concept can be found in the non-conventional and non-generic arrangement of known, conventional pieces." Id. at 12 (citing Bascom Glob. Internet Servs., Inc. v. AT&T Mobility LLC, 827 F.3d 1341, 1350 (Fed. Cir. 2016). The Court found that "the only possible non-conventional and non-generic arrangement in the '764 patent is the combination of asymmetric encryption with content licenses." Digital Media Technologies, Inc. at 13. However, two earlier patents referenced in the '764 patent both considered combining asymmetric encryption with licenses to enforce usage restrictions. Therefore, combining those two concepts was not an inventive concept. Id.

Digital Media Technologies' arguments that its patent was similar to other cases in which claims passed the Alice test failed. For example, the Court found the '764 claim did nothing more than recite an abstract idea with the instruction to perform the idea on a generic computer rather than recite a specific and discrete implementation of an abstract idea as in Bascom. Id. at 14. See Bascom, at 1352 ("BASCOM has alleged that an inventive concept can be found in the ordered combination of claim limitations that transform the abstract idea of filtering content into a particular, practical application of that abstract idea. We find nothing on this record that refutes those allegations").

The Court granted Netflix, Amazon, and Hulu's motion to dismiss in each case. On appeal, the Federal Circuit affirmed November 13, 2018.

On a procedural note, the District Court pointed out that given it was deciding a motion to dismiss, it was required to accept the factual allegations in the complaint as true and construe them in the light most favorable to Digital Media Technologies, Inc., as well as treat exhibits attached to the complaint as a part of the complaint. However, in this instance, the Court's analysis was essentially limited to the '764 patent given that Digital Media Technologies, Inc.'s complaint was "barebones." Digital Media Technologies, Inc. at 9. For example, Digital Media Technologies' exhibits to its complaint against Netflix consisted of the '764 patent, public information about Netflix's services, Digital Media Technologies' infringement notice letter to Netflix, and an additional patent it had also brought suit based upon, but for which it dropped its claims. Digital Media Technologies, Inc. v. Netflix, Case No. 4:16cv243-MW/CAS Dkt No. 1 at 3-5 (N.D. Fla. 2017); Id., Dkt. No. 73 at 6.