Previously, we reported on the US Supreme Court’s decision in Alice Corp. v. CLS Bank International, 573__ U.S. 2014, which held that certain systems and methods of exchanging financial obligations — even if implemented in hardware or software — did not qualify for patent protection because they fell within the “abstract” ideas exception to patent eligibility under 35 U.S.C. § 101. As we predicted, since this decision, a number of courts have followed suit and have issued decisions similarly invalidating claims based on unpatentable subject matter. Here we highlight and summarize two recent decisions demonstrating an increased activity towards invalidation of business method claims implemented on computers.
Buysafe, Inc. v. Google, Case No. 2012-1575 (Fed. Cir. Sept. 3, 2014)
BuySAFE is the owner of US Patent No. 7,644,019, which claims methods and machine-readable media encoded to perform steps for guaranteeing a party’s performance of its online transaction. BuySAFE sued Google for patent infringement in the District of Delaware, and Google moved for judgment on the pleadings, arguing that the asserted claims are invalid under 35 U.S.C. § 101. The asserted claims are directed towards methods of processing and guaranteeing a transaction between two entities using computers over a network. After the District Court granted Google’s motion for judgment on the pleadings, finding that the asserted claims were invalid under §101, BuySAFE appealed to the Federal Circuit.
The Federal Circuit applied a two-part test to determine whether the claims included patent-eligible subject matter. First, the Court analyzed whether the claimed subject matter fell within one of the three exceptions to patent eligibility — that is, whether the claims covered abstract ideas, laws of nature, or natural phenomenon. Using the Supreme Court’s decision in Bilski v. Kappos, 561 U.S. 593 (2010) as a proxy, the Court reasoned that — like Biliski — the claims at issue involved essentially financial transactions between two entities which — in theory — could be applied without computers. Next, the Court considered whether the addition of computers to the claim made the claim sufficiently technical to remove it from the realm of an “abstract” concept. Relying on Alice Corp., the Court found that the computer functionality in the claims was generic and merely took the abstract concept of guaranteeing a contractual relationship into the realm of the Internet, which was not patentable subject matter under recent precedent. Accordingly, the Federal Circuit upheld the District Court’s finding of invalidity under § 101.
Loyalty Conversion Systems v. American Airlines, Inc., Case No. 2:13-CV-655 (E.D. Tex. Sept. 2, 2014)
Loyalty Conversion Systems is the owner of US Patent Nos. 8,313,023 and 8,511,550, which are directed to methods, systems, and graphical user interfaces for conversion of loyalty points earned from a rewards program (such as airline frequent flyer miles or hotel loyalty award points) that can be converted into credits which can be used to purchase goods or services from a vendor other than the issuing entity. Loyalty sued American Airlines and a number of other airline defendants in the Eastern District of Texas. Defendants collectively brought a motion for judgment on the pleadings for invalidity of the asserted claims under 35 U.S.C. §101.
Judge William C. Bryson, sitting by designation from the Federal Circuit bench, held that the inventions claimed in the ‘023 and ‘550 patents were not “fundamentally different from the kinds of commonplace financial transactions that were subjects of Bilski and Alice” and, therefore, the claims fell within the abstract idea exception to patentability. The Court reasoned that the invention was no different than the exchange of one currency to another and the implementation of the idea with computers merely required the computers to keep track of the conversion of loyalty credits and communicate various pieces of the transactions over a network. In other words, the idea was merely implemented on a generic computer with conventional programming which — under the reasoning of Alice Corp. and a host of other recent Federal Circuit decisions — does not convert the claims to patent eligible subject matter. Accordingly, the Court granted the defendants’ motion for judgment on the pleadings under 35 U.S.C. § 101.
These decisions, along with others from the Federal Circuit and in the district courts, confirm that there is an increased trend towards invalidation of so-called business method patents under § 101, even if the claims require or are implemented on computers. There is now a well developed body of case law from the Federal Circuit across various industries that have resulted in findings of invalidity under § 101. See Accenture Global Servs., GmbH v. Guidewire Software, Inc., 728 F.3d 1336 (Fed. Cir. 2013) (“system for generating tasks to be performed in an insurance organization”); Bancorp Servs., L.L.C. v. Sun Life Assurance Co., 687 F.3d 1266 (Fed. Cir. 2012) (“method for managing a life insurance policy, including generating the policy, calculating fees, and determining the surrender value and investment value of the policy”);Dealertrack, Inc. v. Huber, 674 F.3d 1315 (Fed. Cir. 2012) (“method for processing credit applications”); Fort Props., Inc. v. Am. Master Lease LLC, 671 F.3d 1317 (Fed. Cir. 2012) (“method for creating a real estate investment instrument adapted for performing tax-deferred exchanges”); and CyberSource Corp. v. Retail Decisions, Inc., 654 F.3d 1366 (Fed. Cir. 2011) (“method for verifying the validity of credit card transactions”).
The claims that appear to be most susceptible to attack based on unpatentable subject matter defenses under § 101 are claims that require some type of financial transaction between two or more entities and can arguably be carried out without computers. Although such patents may have qualified for protection when they were originally filed, post-Alice Corp., such patents may no longer be valid.