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• Case Summary: Patent claims on a method for detecting fraud in credit card transactions over the internet and a computer storage medium containing instructions to implement the method are not patent eligible.
• Key Takeaway: In its second decision since Bilski v. Kappos, the Federal Circuit takes a different approach, as it concludes that methods that could be performed by the human mind are not patent-eligible, and adding storage on a computer-readable medium does not change the result.
A method for detecting fraud in credit card transactions over the internet is not patent-eligible subject matter, the U.S. Court of Appeals for the Federal Circuit ruled Aug. 16 (CyberSource Corp. v. Retail Decisions Inc., Fed. Cir., No. 2009-1358, 8/16/11).
Affirming a lower court's judgment, which relied on the machine-or-transformation test used prior to the U.S. Supreme Court's decision in Bilski v. Kappos, the court's analysis differed sharply from that of the only other panel to rule on patent eligibility under 35 U.S.C. §101 since then.
The prior Research Corporation Technologies v. Microsoftcourt, ruling in December, generally viewed “functional and palpable applications in the field of computer technology” to strongly suggest Section 101 eligibility. In contrast, the instant court applied the MoT test and invoked “mental process” restrictions from Bilski v. Kapposand the high court's 1972 decision in Gottschalk v. Benson.
The court thus held the claims in suit unpatentable because they were drawn to a method capable of being performed by the human mind or by a human using a pen and paper.
CyberSource Corp. owns a patent (6,029,154) directed to detecting fraud in a credit card transaction between a consumer and a merchant over the internet. Claim 3 is a method claim.
Claim 2 is a system claim reciting “A computer readable medium containing program instructions … wherein execution of the program instructions by one or more processors of a computer system causes the one or more processors to carry out the steps of” the method of Claim 3. This type of computer-readable-medium claim has come to be known as a “Beauregard” claim, pursuant to the holding of the Federal Circuit in In re Beauregard, 53 F.3d 1583, 35 USPQ2d 1383 (Fed. Cir. 1995).
CyberSource sued Retail Decisions Inc. for infringement in 2004, but the case was stayed four years awaiting an ex parte reexamination. After the case resumed and the parties filed a joint claim construction statement, Retail Decisions moved for summary judgment of invalidity, contending that the claims are not drawn to patent-eligible subject matter under Section 101.
Judge Marilyn H. Patel of the U.S. District Court for the Northern District of California followed the then-determinative machine-or-transformation, or MoT, test for a statutory process under Section 101, that the process must either be tied to a particular machine or apparatus or transform a particular article into a different state or thing. 620 F. Supp. 2d 1068, 92 USPQ2d 1011 (N.D. Cal. 2009) (65 PTD, 4/8/09).
Analyzing both Claims 2 and 3 as method claims, she concluded that they did not meet either prong of the test.
The MoT test was described by a split en banc Federal Circuit in In re Bilski, 545 F.3d 943, 88 USPQ2d 1385 (Fed. Cir. 2008) (211 PTD, 10/31/08).
Subsequently, the Supreme Court said that the MoT test could be a useful tool to assess patent eligibility, but it was not an exclusive test. Bilski v. Kappos, 129 S.Ct. 2735, 95 USPQ2d 1001 (2010) (123 PTD, 6/29/10).
The high court reaffirmed that there were three “fundamental principle” exceptions to patentability—laws of nature, physical phenomena, and abstract ideas—and that the patent claims at issue in that case failed the abstractness test. However, the court did little to define abstractness and left it to the Federal Circuit to try again.
In its first Section 101 decision after Bilski v. Kappos, the Federal Circuit refused to provide a rigid formula or definition for abstractness. Research Corporation Technologies Inc. v. Microsoft Corp., 627 F.3d 859, 97 USPQ2d 1274 (Fed. Cir. 2010) (235 PTD, 12/9/10). The court held that “this disqualifying characteristic should exhibit itself so manifestly as to override the broad statutory categories of eligible subject matter and the statutory context that directs primary attention on the patentability criteria of the rest of the Patent Act.”
Two members of the RCT panel, Chief Judge Randall R. Rader and Judge Pauline Newman, had dissented, in separate opinions but on similar grounds, to the appeals court's In re Bilskidecision. Indeed, the RCT opinion did not mention the MoT test or derive Section 101 jurisprudence from In re Bilski or, for that matter, from any other Federal Circuit opinion.
When the RCT court cited to Bilski v. Kappos, it noted the high court's reliance on two cases where Section 101 was satisfied. Diamond v. Diehr, 450 U.S. 175, 209 USPQ 1 (1981), and Diamond v. Chakrabarty, 447 U.S. 303, 206 USPQ 193 (1980).
The panel in the instant case took a different approach. It analyzed the patents at issue under the MoT and took other aspects of In re Bilski to reach its decision and made comparisons to other Federal Circuit decisions on Section 101 since 1982.
The panel relied heavily on Bilski v. Kapposto supplement its MoT analysis, but when it looked for backup from the high court to state its holdings, it referred more to cases where patent eligibility was not found. Gottschalk v. Benson, 409 U.S. 63, 175 USPQ 673 (1972), and Parker v. Flook, 437 U.S. 584, 198 USPQ 193 (1978).
Writing for the court, Judge Timothy B. Dyk affirmed the lower court's judgment as to both Claims 2 and 3.
“[T]he method of claim 3 simply requires one to ‘obtain and compare intangible data pertinent to business risks,' ” the court said. “The mere collection and organization of data regarding credit card numbers and Internet addresses is insufficient to meet the transformation prong of the test, and the plain language of claim 3 does not require the method to be performed by a particular machine, or even a machine at all.”
The court did not unequivocally state that the “internet” is not a machine, but explained that, as to Claim 3, “the Internet cannot perform the fraud detection steps of the claimed method.”
Abiding by the requirement in Bilski v. Kapposto go beyond the MoT test, the court turned to Benson. “[I]n finding that the process in Benson was not patent-eligible, the Supreme Court appeared to endorse the view that methods which can be performed mentally, or which are the equivalent of human mental work, are unpatentable abstract ideas—the ‘basic tools of scientific and technological work' that are open to all.”
The court also found support for the unpatentability of mental processes in its own holding in In re Bilski—the “application of [only] human intelligence to the solution of practical problems is no more than a claim to a fundamental principle”—and in another case before Bilski v. Kappos, In re Comiskey, 554 F.3d 967, 979, 89 USPQ2d 1655 (Fed. Cir. 2009) (8 PTD, 1/14/09).
Looking at the particular steps recited in Claim 3, the court found that all could be “performed in the human mind.” The court made clear that a claim with a mental step in a process with other, non-mental steps is not per se unpatentable, but said, “computational methods which can be performed entirely in the human mind are the types of methods that embody the ‘basic tools of scientific and technological work' that are free to all men and reserved exclusively to none,” again citing Benson.
Claim 2, the Beauregard claim was also not patent eligible, the court concluded. “[I]t is clear … that claim 2 recites nothing more than a computer readable medium containing program instructions for executing the method of claim 3.”
The court rejected CyberSource's attempt to categorize Claim 2 as a “manufacture,” rather than a process. “Regardless of what statutory category (‘process, machine, manufacture, or composition of matter,' 35 U.S.C. § 101) a claim's language is crafted to literally invoke, we look to the underlying invention for patent-eligibility purposes. Here, it is clear that the invention underlying both claims 2 and 3 is a method for detecting credit card fraud, not a manufacture for storing computer-readable information.”
The court likened the case to a decision of its predecessor court in 1982, In re Abele, 684 F.2d 902, 214 USPQ 682 (C.C.P.A. 1982), which held that allowing an apparatus claim drawn to an unpatentable method would “exalt form over substance.”
The court acknowledged that “programming a general purpose computer to perform an algorithm ‘creates a new machine, because a general purpose computer in effect becomes a special purpose computer once it is programmed to perform particular functions pursuant to instructions from program software,' ” per In re Alappat, 33 F.3d 1526, 31 USPQ2d 1545 (Fed. Cir. 1994). “But we have never suggested that simply reciting the use of a computer to execute an algorithm that can be performed entirely in the human mind falls within the Alappat rule.”
Further, the court rejected CyberSource's argument that data transformation satisfies the second prong of the MoT test. “The mere manipulation or reorganization of data … does not satisfy the transformation test.”
Finally, the court held that software instructions, necessarily tied to a machine, still do not impart patent eligibility, in that “the machine ‘must play a significant part in permitting the claimed method to be performed,' ” per SiRF Technology Inc. v. International Trade Commission, 601 F.3d 1319, 1333, 94 USPQ2d 1607 (Fed. Cir. 2010) (71 PTD, 4/15/10).
“Thus, merely claiming a software implementation of a purely mental process that could otherwise be performed without the use of a computer does not satisfy the machine prong of the machine-or-transformation test,” the court held accordingly.
In the next-to-last paragraph of the opinion, the court finally distinguished RCT, concluding that the method in that case was patent eligible because it “required the manipulation of computer data structures … and the output of a modified computer data structure …, [such that] the method could not, as a practical matter, be performed entirely in a human's mind.”
Therefore, the court affirmed that both Claims 2 and 3 “attempt to capture unpatentable mental processes (i.e., abstract ideas), [and therefore] they are invalid under §101.”
Judges William C. Bryson and Sharon Prost joined the opinion.
J. Michael Jakes of Finnegan, Henderson, Farabow, Garrett & Dunner, Washington, D.C., represented CyberSource. Scott J. Bornstein of Greenberg Traurig, New York, represented Retail Decisions.
“Today's decision represents a significant development in the patentable subject matter area post-Bilski; it adds another line in the sand for what is not patentable subject matter,” Matthew J. Dowd of Wiley Rein, Washington, D.C., told BNA.
He said that the decision as to the Beauregard claim might be particularly disruptive, exposing many such claims to validity challenges under Section 101. Such claiming “has been used routinely in the software arts to obtain claim coverage for software embodied on a tangible medium, such as a disk,” he said.
As to the different approaches by the RCT and CyberSource panels, Dowd said, “the CyberSource panel may simply think the facts of RCT are different enough so as not to apply to the present case. Alternatively, the CyberSource panel may disagree with some reasoning in RCT and thus be trying to limit the precedential impact of RCT.”
Dowd noted the CyberSource panel's apparent dismissal of “manipulation” of data as a patent-eligible transformation in the instant case while citing the patent eligibility of the data manipulation in RCT, but he characterized the latter as being a particularly complex algorithm. Nevertheless, he said, “The CyberSource invention, although apparently less complex, did seem to be a ‘functional and palpable application in the field of computer technology,' given that the claimed method requires the use of the internet.” The quoted phrase comes from the RCT opinion, which seemed to indicate that all such “functional and palpable applications” would pass muster under Section 101.
“What we might be seeing is the Federal Circuit redeveloping its common law on patent eligibility,” Dowd concluded. He did not put much weight on the CyberSource court's references to earlier Federal Circuit decisions and pointed instead to “the emphasis in both decisions is on Supreme Court precedent. By focusing on the Supreme Court's Section 101 cases, the court may be trying to create new guidance without unnecessary reliance on pre-Bilski decisions.”
By Tony Dutra
Opinion at http://pub.bna.com/ptcj/091358Aug16.pdf
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