Last week, the Federal Circuit reversed a District of Minnesota decision and found a patent directed to a system and method for processing paper checks to be abstract and not eligible for patent protection. Judge Chen wrote for the panel, which included Judge Hughes and Judge Stoll.
The patent explains that in the past a payee would transport a check to his or her own bank to be read and processed, then the payee's bank would transport the check to the payor's bank, where it would also be read and processed. Eventually, the payor's bank would debit the payor's account and transfer the money to the payee's bank, which would eventually credit the payee's account.
The patent, issued in 2012, explained that the "digital age ushered in a faster approach to processing checks, where the transaction information is turned into a digital file at the merchant's point of sale (POS) terminal." This information is sent over the internet and the funds are then transferred electronically from one account to another. The conversion into digital form made it no longer necessary to physically move the paper checks from one entity to another.
The invention is described as a system and method of electronically processing checks in which:
(1) "data from the checks is captured at the point of purchase,"
(2) "this data is used to promptly process a deposit to the merchant's account,"
(3) the paper checks are moved elsewhere "for scanning and image capture," and
(4) "the image of the check is matched up to the data file."
The patent owner explained that its method allowed merchants to get their accounts credited sooner, without having to wait for the check scanning step.
The District Court and CBM Proceedings
The defendants moved for summary judgment, arguing that the patent claims were directed to "the abstract idea of delaying and outsourcing the scanning of paper checks." The district court disagreed.
The district court, instead, looked to a previous covered business method (CBM) decision. In August 2014, only two months after the Alice decision, the Patent Trial and Appeal Board (PTAB) denied a Section 101 petition and concluded that claim 1 of the same patent was not directed to an abstract idea.
Both the district court and the PTAB focused on the physical nature of the checks' processing and movement. The district court also found that the patent claim's elements described a new combination of steps that was "never found before in the prior art and has been found to be a non-obvious improvement over the prior art."
The patent owner went on to win a multi-million dollar jury verdict, and the defendants appealed.
The Federal Circuit's Analysis
The Federal Circuit, reviewing the ultimate conclusion on patent eligibility de novo, concluded that the claims are directed to the "abstract idea of crediting a merchant's account as early as possible while electronically processing a check."
Looking to the Court's prior Content Extraction opinion, the Federal Circuit explained that "the concept of data collection, recognition, and storage is undisputedly well-known; indeed humans have always performed these functions." In this case, "the claims recite basic steps of electronic check processing." The background of the patent explained that "there has been an industry transition to the electronic processing of checks," and verifying the transaction information was already common. Similarly, the Federal Circuit found that the "desire to credit a merchant's account as soon as possible is an equally long-standing commercial practice."
The patent owner argued that a benefit of the invention is "relieving merchants of the task, cost, and risk of scanning and destroying paper checks by outsourcing those tasks." The Court, however, did not find this advancement in the asserted patent claims. Instead, "the only advance recited in the asserted claims is crediting the merchant's account before the paper check is scanned." The Court concluded that this was an abstract idea.
The Federal Circuit also held that the physicality of the paper checks being processed or transported is not by itself enough to exempt the claims from being directed to an abstract idea. "These claims are, at bottom, directed to getting the merchant's account credited from a customer's purchase as soon as possible, which is an abstract idea."
At step two of the Alice inquiry, the Federal Circuit determined that reordering conventional steps does not save the patent: "the patent describes each individual step in claim 1 as being conventional. Reordering the steps so that account crediting occurs before check scanning (as opposed to the other way around) represents the abstract idea in the claim, making it insufficient to constitute an inventive concept."
Again looking at Content Extraction, the Federal Circuit found that "merely using a general-purpose computer and scanner to perform conventional activities in the way they always have, as the claims do here, does not amount to an inventive concept." Accordingly, the Federal Circuit found the asserted claims to be patent-ineligible and reversed the district court.
The Federal Circuit's opinion can be read here. The patent's representative claim is below:
A method for processing paper checks, comprising:
a) electronically receiving a data file containing data captured at a merchant's point of purchase, said data including an amount of a transaction associated with MICR (magnetic ink character recognition) information for each paper check, and said data file not including images of said checks;
b) after step a), crediting an account for the merchant;
c) after step b), receiving said paper checks and scanning said checks with a digital image scanner thereby creating digital images of said checks and, for each said check, associating said digital image with said check's MICR information; and
d) comparing by a computer said digital images, with said data in the data file to find matches.