Our previous newsletter summarized the Supreme Court’s much anticipated In re Bilski decision, which reaffirmed the longstanding principle that “laws of nature, physical phenomena, and abstract ideas” are not patentable subject matter and held that the so-called “machine or transformation test” is not the sole test for patentability under 35 U.S.C. § 101 (“§ 101”).  In the just-decided CyberSource Corp. v. Retail Decisions, Inc.1 case, the Federal Circuit applied In re Bilski to invalidate a patent covering software designed to prevent credit card fraud.  Although one of the invalid claims was written in “Beauregard” form common to thousands of software patents, that alone was not enough to save the claim from being invalidated.

Background

CyberSource, owner of the patent-in-suit (the “‘154 Patent”), appealed to the Federal Circuit from a lower court decision granting defendant Retail Decisions, Inc.’s motion for summary judgment of patent invalidity under § 101.  The ‘154 patent recites a “method and system for detecting fraud in a credit card transaction between [a] consumer and a merchant over the Internet.”  In essence, the ‘154 patent purports to cover any method or system for detecting credit card fraud that utilizes information associating credit card transactions with particular “Internet address[es].”  CyberSource asserted only two claims against Retail Decisions, Inc.2   Claim 3 is drawn to the business method described above.3   Claim 2, however, is written in “Beauregard” form,4 reciting “a computer readable medium containing program instructions for detecting fraud in a credit card transaction . . . .”5

The Decision

The Federal Circuit first analyzed claim 3, agreeing with the district court that it failed to satisfy either prong of the machine-or-transformation test.  The mere “collection and organization of data” was not transformative, and – despite its recitation of “the Internet” – the plain language of the claim did not require performance by a machine.  Instead, claim 3 simply recited an unpatentable mental process that could be performed in one’s mind or with a pencil and paper.  Mental processes, the court noted, are simply a subcategory of unpatentable abstract ideas.  As “the basic tools of scientific and technological work,” they are “open to all.”6

Written in the widely-used “Beauregard” format, some may have believed that claim 2 was immune to an invalidity attack.  Yet the court struck it down as well.  Relying on precedents both before and after the In re Bilski decision, the court held that  inclusion of the (presumably) magic words “computer readable medium” and “instructions,” without more, did not render claim 2 patentable subject matter; claim 2 recited nothing more than a means for executing claim 3’s mental process.7  The mere addition of a computer to implement an abstract idea by itself does not make an invention patentable, if the underlying invention itself is unpatentable.8  Having held the underlying method of credit card fraud detection in claim 3 unpatentable, the court likewise invalidated claim 2 as merely claiming a software implementation of a mental process that did not require a computer.  Concluding that both claims 2 and 3 were directed to a method consisting of  “a general approach of obtaining information about credit card transactions, utilizing an Internet address and then using that information in some undefined manner . . . ,”9 the court found both claims unpatentable under § 101.

Conclusion

Despite the CyberSource decision, Beauregard claims will continue to be used widely.  However, in doing so, patent practitioners may want to keep in mind the Federal Circuit’s caution about using the results of method steps “in an undefined manner.”  Perhaps, with more definition, the results may have been different.10