The District of Minnesota recently issued its fourth post-Alice decision, this time addressing the question of patent subject matter eligibility for a check processing patent. After analyzing a representative claim using the two-step Alice framework, the Honorable Susan Richard Nelson held that the claims were not directed to an abstract idea, and even if they were, provided an inventive concept. The Court also granted summary judgment in favor of Solutran, Inc. (Solutran), finding that U.S. Bancorp’s Electronic Check Service system infringed the asserted patent. For businesses that rely on check processing technology, the decision and breadth of the patent could have significant implications.

The Check Processing Patent

Solutran’s U.S. Patent No. 8,311,945 (the ‘945 Patent) claims a system and method for processing checks. The invention “eliminat[es] the need for merchants to scan checks after they are received” and speeds up the “rate at which the merchant’s account would be credited with a payment.” The representative claim addressed by the Court was for a method of processing paper checks that includes four steps:

1) electronically “captur[ing] data from a paper check at the merchant’s point of sale” into a “data file”;

2) “crediting an account for the merchant”;

3) receiving and scanning the paper check (with a digital image scanner) “at a different location to create an image”; and

4) comparing the “digital images with … the data file to find matches.”

This allows for “processing of paper checks, via two-paths, at different times and locations.” Merchants can capture the relevant check information and get paid more quickly, without the need to scan the paper checks themselves.

US Bank’s Failed Attempt at the Patent Trial and Appeal Board

After Solutran sued U.S. Bancorp and its subsidiary (collectively, US Bank), US Bank petitioned the Patent Trial and Appeal Board (PTAB) for Covered Business Method (CBM) review in 2014. US Bank argued that the patent was invalid because (1) under 35 U.S.C. § 101, it claimed patent ineligible subject matter; and (2) under 35 U.S.C. § 103, it was obvious based on prior art. The PTAB rejected Solutran’s argument under § 101 but instituted trial under § 103. Ultimately, the PTAB found that the claims were not obvious under § 103, and the Federal Circuit affirmed.

The Alice Two-Step Framework

Our prior post on motions to dismiss under § 101 in the District of Minnesota explained the patent eligible subject matter test set forth by the Supreme Court in Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 134 S. Ct. 2347 (2014):

First, the Court determines whether the claim at issue is “directed to” a judicial exception, such an abstract idea. If so, under step two of the Alice framework, the Court must decide whether the claims contain an “inventive concept” sufficient to “transform the nature of the claim into a patent-eligible application.”

The District Court Agreed with the PTAB in Rejecting US Bank’s Alice Challenge

After finding that US Bank infringed the asserted claim, the District Court rejected US Bank’s renewed challenge to the validity of the ‘945 Patent under § 101. The Court found the PTAB’s earlier decision “persuasive” and focused heavily on the “physical” nature of the claimed method.

In Alice step one, the Court found that the “the character of [Claim 1] as a whole” was not directed to an abstract idea, but rather, “a physical process for processing paper checks … at different times and locations.” The Court explained that the claimed method was “a palpable application” of processing paper checks that required “the physical movement of paper checks” and processing “in a different time and place.” In reaching its conclusion, the Court distinguished a prior Federal Circuit case finding invalid claims “directed to a computerized technique that recognized data in scanned documents and stored that data in appropriate data fields in a computer.” See Content Extraction & Transmission LLC v. Wells Fargo Bank, N.A., 776 F.3d 1343, 1345 (Fed. Cir. 2014). In Content Extraction, the method allowed “software on an automated teller machine (ATM) [to] recognize[] information written on a scanned check … and populate[] certain data fields with that information in a computer’s memory.” The Court found that the claims in Content Extraction differed because they were “not based on when or how the hard copy documents were scanned, manipulated, or transported.” The Court reasoned that although “the ‘945 patent’s claims may involve the use of scanning or imaging devices,” the claimed advance “over the prior art [was not] based on the processing, gathering, or manipulation of data via computer.”

At step two of the Alice framework, the Court rejected the argument that the “claimed invention is nothing more than a trivial application of computers and scanning equipment to conventional check processing.” Instead, considering the “ordered combination of the elements in Claim 1,” the Court found that the claims satisfied the machine-or-transformation test because “the physical paper check is transformed into a different state or thing, namely into a digital image.”

Alice Continues to Carry Significant Impact

The Alice defense continues to be an important tool for challenging patents that are directed to abstract ideas, and the Federal Circuit has now provided a significant body of case law under the Alice framework. While the patent claims in each case are judged on their own merit based on the claims’ language, courts frequently look to analogous claims in prior decisions in reaching their decision on whether the claims are directed to an abstract idea and provide an inventive concept. In this case, US Bank made its § 101 challenge at the PTAB before the Supreme Court’s decision in Alice and before numerous other Federal Circuit decisions further outlined the analysis of the defense. Although the Court considered the more recent decisions, US Bank likely had an uphill battle with the motion, having already lost on the argument before the PTAB.

Given the breadth of the claims, the decision could have significant implications not just for US Bank but for any other banks and companies using check processing technology. It has been more than four years since Solutran filed suit. And since direct patent infringement requires no showing of intent to infringe, damages for broadly applied business practices over several years could be significant. Thus, it remains crucial for businesses in the software and financial industries to stay up to date in this area of patent litigation to anticipate and understand business risks.

A copy of Judge Nelson’s order can be found here.