Smart Systems Innovations v. Chicago Transit Authority, Federal Circuit 2017 (Software Patents)

The software patents in this case relate to inventions designed to allow riders to access mass transit by using existing bankcards, such as debit and credit cards, without the need for first buying dedicated fare-cards, paper tickets, or tokens.  The District Court had held that the patent claims are directed to an abstract idea and otherwise lack an inventive concept, such that they are patent ineligible under 35 U.S.C. § 101.On appeal, the Federal Circuit noted that they needed to use the framework set forth in the Supreme Court’s decision in Alice Corp. Pty Ltd. v. CLS Bank International. A patent claim falls outside § 101 where (1) it is “directed to” a patent-ineligible concept, i.e., a law of nature, natural phenomenon, or abstract idea, and (2) if so, the particular elements of the claim, considered “both individually and ‘as an ordered combination,’” do not add enough to “‘transform the nature of the claim’ into a patent-eligible application.”

Claim 14 of one of the software patents recites:

A method for validating entry into a first transit system using a bankcard terminal, the method comprising:

• downloading, from a processing system associated with a set of transit systems including the first transit system, a set of bankcard records comprising, for each bankcard record in the set, an identifier of a bankcard previously registered with the processing system, and wherein the set of bankcard records identifies bankcards from a plurality of issuers;
• receiving, from a bankcard reader, bankcard data comprising data from a bankcard currently presented by a holder of the bankcard, wherein the bankcard comprises one of a credit card and a debit card;
• determining an identifier based on at least part of the bankcard data from the currently presented bankcard;
• determining whether the currently presented bankcard is contained in the set of bankcard records;
• verifying the currently presented bankcard with a bankcard verification system, if the bankcard was not contained in the set of bankcard records; and
• denying access, if the act of verifying the currently presented bankcard with the bankcard verification system results in a determination of an invalid bankcard.

The district court had taken the position that the software patents here really only cover an abstract concept: paying for a subway or bus ride with a credit card.  On appeal, SSI argued that some of the patents disclose inventions that “operate in the tangible world” and satisfy a public demand for more convenient travel that did not exist in the prior art.  SSI also argued that other ones of the patents similarly do not concern an abstract idea because their claims “overcome challenges created by the storage limitations that exist with conventional tangible bankcards.

The Federal Circuit stated that the claims are directed to the formation of financial transactions in a particular field (i.e., mass transit) and data collection related to such transactions. The claims of the software patents are not directed to a new type of bankcard, turnstile, or database, nor do the claims provide a method for processing data that improves existing technological processes. Rather, the claims are directed to the collection, storage, and recognition of data. SSI also argued that the asserted claims are not directed to an abstract idea because they apply to a concrete field; namely mass transit.

The Federal Circuit concluded that the software patent’s claims are not directed to a combined order of specific rules that improve any technological process, but rather invoke computers in the collection and arrangement of data. Claims with such character do not escape the abstract idea exception under Alice step one according to the Federal Circuit.

With regard to Alice step two, the Federal Circuit stated that the asserted claims fail to provide an inventive concept.  When claims like the asserted software patent claims are directed to an abstract idea and “merely require generic computer implementation, they do not move into section 101 eligibility territory.

Thus, the software patent claims were held to not be patent-eligible.

More interesting than the majority opinion in this case was the well-reasoned dissent.

According to Judge Linn, the language of Section 101 is well-recognized as providing a wide and permissive scope for  patent eligibility.  He cited to the Supreme Court decision in Bilski v. Kappos, (quoting the Supreme Court’s decision in Diamond v. Chakrabarty) (“In choosing such expansive terms . . . modified by the comprehensive ‘any,’ Congress plainly contemplated that the patent laws would be given wide scope.”). Within this expansive provision, the Supreme Court has recognized “an important implicit exception: Laws of nature, natural phenomena, and abstract ideas are not patentable.

These three “exceptions” share a common origin and address what the Supreme Court saw and has often reiterated as a related set of common concerns. “A principle, in the abstract, is a fundamental truth; an original cause; a motive; these cannot be patented, as no one can claim in either of them an exclusive right.”

According to the dissent, there is no principled difference between the judicially recognized exception relating to “abstract ideas” and those relating to laws of nature and natural phenomena. All three nonstatutory exceptions are intended to foreclose only those claims that preempt and thereby preclude or inhibit human ingenuity with regard to basic building blocks of scientific or technological activity. They are intended to be read narrowly.  At some level, all inventions, including software inventions, embody, use, reflect, rest upon, or apply laws of nature, natural phenomena, or abstract ideas.