Western Union's Money Transfer Patents Held Invalid for Obviousness on Appeal

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A patent on an invention that simply replaced a phone- and fax-based solution with an internet-based approach was invalid for obviousness, the U.S. Court of Appeals for the Federal Circuit ruled Dec. 7 (Western Union Co. v. MoneyGram Payment Systems Inc., Fed. Cir., No. 2010-1080, 12/7/10).

The court reversed the district court's award of $16.5 million for infringement of Western Union Co.'s patents on money transfers using the internet to set up the transactions.

The Federal Circuit reaffirmed its jurisprudence since the 2007 KSR case that the use of computing devices and the internet for communicating between them would have been obvious to a person of ordinary skill looking to improve on prior communication-based business applications.

Western Union Money Transfer System at Issue.

Western Union owns four patents (6,488,203; 6,502,747; 6,761,309; and 7,070,094) directed to a system for performing “formless” money transfers. The first three patents describe a money send transaction; the '094 patent is directed to the receipt of the transaction. The '747 patent adds the use of the internet-based TCP/IP protocol to conduct the transfer.

The earliest filing date for the patents was Oct. 26, 1999; the patents were issued between Dec. 3, 2002, and July 4, 2006.

A prior art system, used as early as 1997, allowed a money sender to initiate the transaction via a telephone conversation with a customer service representative, or CSR. Use of the system was therefore formless from the perspective of the sender.

Western Union acquired this “Orlandi Valuta” system in 1997. Its developers are listed as the inventors on the four patents at issue.

The company sued MoneyGram Payment Systems Inc., a direct competitor, in 2007 for patent infringement.

Judge Sam Sparks of the U.S. District Court for the Western District of Texas granted summary judgment of noninfringement of the '094 patent, but a jury found some of the asserted claims of the remaining patents infringed and not invalid for obviousness. The jury awarded $16.5 million in compensatory damages to Western Union.

Sparks denied MoneyGram's motion for judgment as a matter of law. MoneyGram appealed.

Computer- and Internet-Related Improvements Obvious.

The Federal Circuit reversed the obviousness decision, relying on its opinions on internet-related inventions since the U.S. Supreme Court's decision in KSR International Co. v. Teleflex Inc., 550 U.S. 398, 82 USPQ2d 1385 (2007) (74 PTCJ 5, 5/4/07).

Judge Alan D. Lourie divided the obviousness analysis into two parts.

First, he assessed differences between the Orlandi Valuta system and the patented invention as to the devices and communication systems used. In the prior art system, the CSR sent an invoice back to an agent at the sender's location as a fax document. Meanwhile, the invention describes a CSR sending a message over the internet to an electronic transaction fulfillment device, or ETFD, defined as “an electronic terminal having a keypad.”

Lourie concluded that ETFDs were commonplace in the art at the time of the invention. In the wake of KSR, we have held that applying computer and internet technology to replace older electronics is commonplace, he said, pointing to Muniauction Inc. v. Thomson Corp., 532 F.3d 1318, 87 USPQ2d 1350 (Fed. Cir. 2008) (76 PTCJ 410, 7/25/08); and Leapfrog Enterprises Inc. v. Fisher-Price Inc., 485 F.3d 1157, 82 USPQ2d 1687 (Fed. Cir. 2007) (74 PTCJ 87, 5/18/07).

“Here too, we find the use of an electronic transaction device where the prior art employed a fax machine to be an unpatentable improvement at a time when such a transition was commonplace in the art,” Lourie said. “We fail to see how it would have been difficult for a person of ordinary skill in the art to integrate an electronic transaction device that was available from Western Union itself into a well-known money transfer system that was also owned by Western Union at the time of the invention.”

The TCP/IP addition in the '704 patent was not availing to Western Union either, as the court said, “it would have been obvious for a person of ordinary skill in the art to use internet-based protocols in networking the systems used in the '203 patent.”

As to the second obviousness issue, the agent in the Orlandi Valuta system called out the name of the sender after the fax was received, who then completed the send transaction by giving the money to the agent. In Western Union's invention, the system supplied a unique numerical code identifying the transaction, which the sender would enter into the ETFD.

However, the Orlandi Valuta system did, in fact, deliver a code that was printed on the invoice and used for follow-up tracking purposes. It simply was unnecessary for identifying the sender in that prior art system.

“Where the fax machine is replaced with an electronic transaction device that is capable of retrieving information from the host computer, it would be common sense for a person of skill to use the transaction code throughout the life of the transaction,” Lourie said. “Consequently, other code-related limitations in the asserted claims, such as entering the code into the ETFD and validation of the code by the host computer, would have also been a matter of common sense to a person of ordinary skill in the art.”

Secondary Considerations Nexus Lacking.

Finally, the court addressed Western Union's argument that secondary considerations of nonobviousness supported the district court's denial of MoneyGram's JMOL motion.

Lourie said that such a secondary consideration as the evidence of Western Union's success with the improved formless system was irrelevant, because the patent owner failed to establish a nexus between the success and the invention. “Western Union does not claim that it invented a formless money transfer system or that systems such as Orlandi Valuta are not prior art to the claimed invention,” Lourie said. “It cannot therefore claim any commercial success that arose from features of the system found in the prior art as a consideration for nonobviousness of its claimed invention.”

He further discounted Western Union's argument that its invention was nonobvious based on the secondary consideration that both parties knew of the Orlandi Valuta system, but chose to develop new systems. Again, he faulted the company for failing to link the investments in system development to the inventions. “Mere attorney argument that both parties refused to adopt the Orlandi Valuta system specifically because it was lacking the innovative aspects of the claimed inventions is not evidence that can support a finding of nonobviousness,” he said.

The court thus concluded that the asserted claims would have been obvious as a matter of law.

Chief Judge Randall R. Rader and Judge Sharon Prost joined the opinion.

David E. Sipiora of Townsend and Townsend and Crew, Denver, represented Western Union. MoneyGram was represented by William F. Lee of Wilmer Cutler Pickering Hale and Dorr, Boston.

By Tony Dutra

Opinion at http://pub.bna.com/ptcj/101080Dec7.pdf