DCT
2:09-cv-06918
Ultramercial LLC v. Hulu LLC
I. Executive Summary and Procedural Information
- Parties & Counsel:
- Plaintiff: Ultramercial, LLC; Ultramercial, Inc. (Delaware)
- Defendant: Hulu, LLC (Delaware); YouTube, LLC (Delaware); WildTangent Inc. (Delaware)
- Plaintiff’s Counsel: Hennigan, Bennett & Dorman LLP
- Case Identification: 2:09-cv-06918, C.D. Cal., 11/12/2009
- Venue Allegations: Venue is asserted based on Defendants' business activities within the Central District of California, where the alleged infringing acts were carried out or had effect.
- Core Dispute: Plaintiff alleges that Defendants’ online video and gaming platforms, which provide users with free access to copyrighted content in exchange for viewing sponsored advertisements, infringe a patent on this method of monetization.
- Technical Context: The lawsuit concerns the foundational business model of monetizing digital content (such as streaming video and online games) through advertising sponsorship as an alternative to direct consumer payment.
- Key Procedural History: The complaint alleges extensive pre-suit history with all three defendants. Plaintiff asserts it pitched its "Ultramercial System" to Google/YouTube, Hulu's parent companies (NBC/Universal, Fox), and WildTangent while the patent was pending. The complaint further alleges WildTangent was a former customer of Ultramercial that implemented the patented system before terminating the relationship and allegedly continuing its use without a license. These interactions form the basis of the willfulness allegations.
Case Timeline
| Date | Event |
|---|---|
| 2000-05-27 | '545 Patent Priority Date |
| 2005-02-XX | YouTube created |
| 2006-02-14 | WildTangent approached Plaintiff regarding advertising solutions |
| 2006-04-XX | Plaintiff began discussions with Google regarding the Ultramercial System |
| 2006-XX-XX | Plaintiff introduced the Ultramercial System to NBC/Universal |
| 2006-09-XX | Plaintiff launched an advertising campaign for WildTangent |
| 2006-11-XX | Google purchased YouTube |
| 2006-12-XX | WildTangent stopped contracting for Plaintiff's services |
| 2007-03-XX | Hulu founded |
| 2007-10-29 | Hulu launched its online service |
| 2008-03-12 | Alleged start of Hulu's infringement |
| 2008-03-18 | U.S. Patent No. 7,346,545 issues |
| 2009-06-15 | Alleged start of YouTube's infringement |
| 2009-11-12 | Complaint Filing Date |
II. Technology and Patent(s)-in-Suit Analysis
U.S. Patent No. 7,346,545 - "Method and System for Payment of Intellectual Property Royalties by Interposed Sponsor on Behalf of Consumer Over a Telecommunications Network"
- Patent Identification: U.S. Patent No. 7,346,545, "Method and System for Payment of Intellectual Property Royalties by Interposed Sponsor on Behalf of Consumer Over a Telecommunications Network," issued March 18, 2008.
The Invention Explained
- Problem Addressed: The patent identifies a dual problem from the early 2000s: 1) the widespread, illegal online distribution of copyrighted content (e.g., music) by users who lack traditional payment methods like credit cards, leading to lost royalties for creators; and 2) the decreasing effectiveness of conventional advertising due to consumer ad-avoidance behaviors like "channel surfing" and low click-through rates on banner ads (’545 Patent, col. 1:23 - col. 2:19).
- The Patented Solution: The invention proposes a method for a "facilitator" (an intermediary website or service) to offer copyrighted content to a consumer for free on the condition that the consumer first views a message from a sponsor. The sponsor, in turn, pays a royalty for the content on the consumer's behalf, providing a "cashless" and legitimate way for consumers to access content while creating a revenue stream for copyright holders and a "captive audience" for advertisers (’545 Patent, Abstract; col. 2:31-43). The relationship between the four principal parties—consumer, facilitator, IP rights holder, and sponsor—is illustrated in the patent's first figure (’545 Patent, Fig. 1).
- Technical Importance: The method provided a structured business model to address the market failure caused by piracy, creating a legitimate, accountable royalty source for content owners while offering advertisers a more engaged audience than conventional online ads (’545 Patent, col. 2:66 - col. 3:7).
Key Claims at a Glance
- The complaint asserts infringement of "one or more of the claimed methods" without specifying claim numbers (Compl. ¶87). The patent contains two independent method claims, 1 and 8.
- Independent Claim 1 includes the following essential elements:
- Receiving media products from a content provider.
- Selecting a sponsor message, which includes accessing an activity log to verify the number of times the message has been presented against a contracted limit.
- Providing the media product for sale on an Internet website.
- Restricting general public access to the media product.
- Offering a consumer access to the product without charge on the precondition that the consumer views the sponsor message.
- Receiving a request from the consumer to view the message.
- Facilitating the display of the sponsor message.
- Allowing the consumer to access the media product after the message is displayed (with different steps for interactive vs. non-interactive messages).
- Recording the transaction event to an activity log.
- Receiving payment from the sponsor.
- The complaint does not explicitly reserve the right to assert dependent claims.
III. The Accused Instrumentality
Product Identification
- The accused instrumentalities are the advertising-supported content delivery systems used on the websites operated by YouTube, Hulu, and WildTangent (Compl. ¶¶ 87, 97, 107).
Functionality and Market Context
- The complaint alleges that Defendants provide access to copyrighted content, such as premium television shows and movies (Hulu, YouTube) and downloadable games (WildTangent), over the internet (Compl. ¶¶ 17, 42, 69). To access this content for free, a user is allegedly required to first view a sponsored advertisement (Compl. ¶¶ 21-22, 46-47, 73-74).
- Specific accused systems mentioned include Hulu's "Ad Selector," which allegedly allows users to choose which advertisement to watch, and WildTangent's "Sponsored Sessions," which allow users to play games for free in exchange for watching an ad (Compl. ¶¶ 65, 73).
- The complaint positions the accused services as major market players, alleging YouTube has 71 million unique monthly users, Hulu has partnerships with nearly 170 content companies and over 200 Fortune 500 advertisers, and WildTangent's game console is factory-installed on a high percentage of new personal computers (Compl. ¶¶ 16, 42, 48, 72).
IV. Analysis of Infringement Allegations
No probative visual evidence provided in complaint.
- Claim Chart Summary: The following table summarizes the infringement allegations for representative independent Claim 1 of the ’545 Patent, mapping the complaint's narrative allegations to the claim elements.
| Claim Element (from Independent Claim 1) | Alleged Infringing Functionality | Complaint Citation | Patent Citation |
|---|---|---|---|
| a first step of receiving, from a content provider, media products that are covered by intellectual-property rights | Defendants are alleged to have partnership deals with major content providers (e.g., CBS, BBC, FOX, NBC) to make premium video content and games available online. | ¶¶17-18, 42, 71 | col. 3:45-48 |
| a third step of providing the media product for sale at an Internet website; a fourth step of restricting general public access to said media product | Defendants allegedly offer copyrighted content on their websites but "gate" access, requiring a user action before the content can be viewed. | ¶¶4, 15, 21, 46 | col. 8:23-27 |
| a fifth step of offering to a consumer access to the media product without charge to the consumer on the precondition that the consumer views the sponsor message | Defendants' services allegedly require users to view or agree to view a sponsored message before they are allowed to view the desired video or play the desired game for free. | ¶¶21-22, 47, 74 | col. 8:28-32 |
| a sixth step of receiving from the consumer a request to view the sponsor message | A user's selection of content that is monetized by a pre-roll advertisement allegedly constitutes a request to view the ad to proceed. | ¶¶22, 47, 74 | col. 8:33-36 |
| a seventh step of, in response to receiving the request from the consumer, facilitating the display of a sponsor message to the consumer | Defendants' platforms are alleged to place advertisements "in front of and within the video content," displaying the sponsored message to the user. | ¶¶21, 46, 74 | col. 8:37-40 |
| an eighth step of... allowing said consumer access to said media product after said step of facilitating the display of said sponsor message | After the user views the sponsored message, they are allegedly allowed to view the selected video content or play the game for free. | ¶¶21-22, 47, 74 | col. 8:41-45 |
| an eleventh step of receiving payment from the sponsor of the sponsor message displayed | Defendants are alleged to generate significant revenue from advertisers (e.g., Fortune 500 companies) who place sponsored messages on their platforms. | ¶¶23, 48-49, 75 | col. 7:14-16 |
- Identified Points of Contention:
- Scope Questions: The patent specification and figures describe a system with four distinct principals: a consumer, a content holder, a sponsor, and a "facilitator" (’545 Patent, Fig. 1). The infringement allegations appear to treat each defendant as an integrated platform performing the roles of facilitator, content distributor, and advertiser-facing entity. This raises the question of whether the claims, which recite a method performed "via a facilitator," can be read to cover an integrated system where the facilitator is not a distinct intermediary entity.
- Technical Questions: The second step of Claim 1 requires "selecting a sponsor message" that includes "accessing an activity log to verify that the total number of times which the sponsor message has been previously presented is less than the number of transaction cycles contracted by the sponsor" (’545 Patent, col. 8:14-22). The complaint does not provide sufficient detail for analysis of whether the accused systems perform this specific verification against a contractual limit as part of the real-time ad selection process for each transaction.
V. Key Claim Terms for Construction
The Term: "facilitator"
Context and Importance: This term is foundational to the claimed method. The infringement analysis may turn on whether each defendant, acting as an integrated platform, qualifies as a "facilitator" as the term is used in the patent, or if the patent requires a separate, intermediary entity. Practitioners may focus on this term because the patent’s description, particularly Figure 1, depicts the facilitator as a distinct entity connecting the other three parties.
Intrinsic Evidence for Interpretation:
- Evidence for a Broader Interpretation: The claims define the facilitator by its actions (e.g., "receiving... media products," "providing the media product for sale," "restricting... access"). An argument could be made that any entity performing these functions is a facilitator, regardless of its relationship to the other parties.
- Evidence for a Narrower Interpretation: The detailed description consistently describes a system of four principals and describes the facilitator's role as connecting them (e.g., "four principals are preferably present: a facilitator 10, a consumer 20, an intellectual property (IP) rights holder 30, and an interposed sponsor 40") (’545 Patent, col. 3:39-42). This language may support a construction requiring a distinct intermediary.
The Term: "accessing an activity log to verify..."
Context and Importance: This limitation defines a specific technical function within the ad selection step. Proving infringement requires showing that the accused systems perform not just ad tracking, but this specific verification against a contractual limit. Practitioners may focus on this term because it appears to require a specific and potentially complex software implementation that may not be present in all ad-serving systems.
Intrinsic Evidence for Interpretation:
- Evidence for a Broader Interpretation: The specification discusses maintaining "use logs to keep accurate records" for accounting and royalty purposes (’545 Patent, col. 4:19-22). This could be argued to cover any general system of ad impression tracking used for campaign management.
- Evidence for a Narrower Interpretation: The claim language places this step within the "second step of selecting a sponsor message," suggesting a real-time check that influences which ad is selected for a given transaction, not merely post-hoc accounting (’545 Patent, col. 8:14-22).
VI. Other Allegations
- Indirect Infringement: The complaint does not plead any claims for indirect infringement. The three claims for relief allege direct infringement by each defendant (Compl. ¶¶ 87, 97, 107).
- Willful Infringement: Willfulness is alleged against all three Defendants. The complaint bases these allegations on extensive, direct, pre-suit communications during which Plaintiff allegedly disclosed its technology and the existence of its pending patent application, and later its issued patent (Compl. ¶¶ 92, 102, 112). Specific factual allegations include multiple meetings, phone calls, and PowerPoint presentations with Google/YouTube and Hulu's development team between 2006 and 2008 (Compl. ¶¶ 24-36, 51-62). For WildTangent, the willfulness allegation is additionally based on its status as a former paying customer who used Plaintiff's system and was aware of the "patent pending" status of the technology before allegedly continuing to use the method without a license (Compl. ¶¶ 77, 81, 111).
VII. Analyst’s Conclusion: Key Questions for the Case
- A core issue will be one of claim construction: can the term "facilitator", described in the patent's preferred embodiment as a distinct intermediary, be construed to cover the Defendants' integrated platforms where a single entity performs the roles of content host, website operator, and advertising broker?
- A key evidentiary question will be one of functional proof: can Plaintiff provide evidence that the accused advertising systems perform the specific, ordered method steps of the claims, particularly the pre-selection step of "accessing an activity log to verify" ad display counts against a contractual limit, or is there a material difference in technical operation?
- Finally, the outcome of the willfulness claims will likely depend on the factual record developed regarding the extensive pre-suit communications alleged in the complaint, and whether Defendants can establish a good-faith belief of non-infringement or invalidity that developed prior to the challenged conduct.