SOLUTRAN, INC. v ELAVON, INC., FEDERAL CIRCUIT 2019 (SOFTWARE PATENTS)

This decision involves U.S. Patent No. 8,311,945, assigned to Solutran, Inc.

The patent explains that in the past, the payee would transport the check to his or her own bank to be read and processed, then the payee’s bank would transport the check to the payor’s bank,where it also would be read and processed. At this point, the payor’s bank would debit the payor’s account and transfer the money to the payee’s bank, which would credit the payee’s account.

The digital age ushered in a faster approach to processing checks, where the transaction information—e.g., amount of the transaction, routing and account number—on the check is turned into a digital file at the merchant’s point of sale (POS) terminal.

The digital check information is sent electronically over the Internet or other network, and the funds are then transferred electronically from one account to another. By converting the check information into digital form, it no longer was always necessary to physically move the paper check from one entity to another to debit or credit the accounts. But retaining the checks was still useful for, among other things, verifying accuracy of the transaction data entered into the digital file.The patent also discloses a method proposed by the National Automated Clearing House Association (NACHA) for “back office conversion” where merchants scan their checks in a back office, typically at the end of the day, “instead of at the purchase terminal,” A scanner captures an image of the check, and MICR data from the check is stored with the image. An image file containing this information can be transferred to a bank or third-party payment processor.

The patent describes its invention as a system and method of electronically processing checks in which (1) data from the checks is captured at the point of purchase, (2) this data is used to promptly process a deposit to the merchant’s account, (3) the paper checks are moved elsewhere “for scanning and image capture,” and (4) “the image of the check is matched up to the data file.”  The proffered benefits include “improved funds availability”for merchants and allegedly “relieving merchants] of the task, cost, and risk of scanning and destroying the paper checks themselves, relying instead on a secure, high-volume scanning operation to obtain digital images of the checks.”  Solutran explains that its method allows merchants to get their accounts credited sooner, without having to wait for the check scanning step.

Claim 1 is representative and recites:

1. A method for processing paper checks, comprising:

  • a) electronically receiving a data file containing data captured at a merchant’s point of purchase, said data including an amount of a transaction associated with MICR information for each paper check, and said data file not including images of said checks;
  • b) after step a), crediting an account for the merchant;
  • c) after step b), receiving said paper checks and scanning said checks with a digital image scanner thereby creating digital images of said checks and, for each said check, associating said digital image with said check’s MICR information; and
  • d) comparing by a computer said digital images, with said data in the data file to find matches.

The (lower) district court concluded that the claims were not directed to an abstract idea and the patent was therefore patent-eligible. The district court found a previous covered business method (CBM) review of the patent by the Patent Trial and Appeal Board (Board) persuasive in reaching its determination. The Board issued a decision denying a petition as to a §101 challenge, concluding that claim 1 of the patent was not directed to an abstract idea. The Board reasoned that “the basic, core concept of independent claim 1 is a method of processing paper checks, which is more akin to a physical process than an abstract idea.”

To determine whether claimed subject matter is patent-eligible, the Federal Circuit applied the two-step framework explained in Alice v CLS.  First, the Federal Circuit is to “determine whether the claims at issue are directed to a patent-ineligible concept” such as an abstract idea.  Second, if so, the Federal Circuit is to “examine the elements of the claim to determine whether it contains an ‘inventive concept’ sufficient to ‘transform’ the claimed abstract idea into a patent-eligible application.” At each step, the claims are considered as a whole.

With regard to Step One, the Federal Circuit agreed with U.S. Bank that the claims of the patent are directed to an abstract idea. The Federal Circuit concluded that the claims are directed to the abstract idea of crediting a merchant’s account as early as possible while electronically processing a check.  The Federal Circuit noted that they had previously ruled that certain transaction claims performed in a particular order or sequence are directed to abstract ideas in Ultramercial, Inc. v. Hulu, LLC.  In Ultramercial, the claims at issue were drawn to a method for distribution of copyrighted content over the Internet including the steps of receiving media from a content provider, selecting an ad, offering the media to the consumer in exchange for watching the ad, displaying the ad, then allowing the consumer to access the media. The Federal Circuit in Ultramercial determined that the ordered combination of steps recited “an abstraction—an idea, having no particular concrete or tangible form.” Id.at 715. We defined the abstract idea as “showing an advertisement be-fore delivering free content.  Because the innovative aspect of the claimed invention in Ultramercial was an entrepreneurial rather than a technological one, the Federal Circuit deemed that invention patent-ineligible.

The Federal Circuit stated that, aside from the timing of the account crediting step, the ’945 patent claims recite elements similar to those in Content Extraction & Transmission LLC v. Wells Fargo Bank, NationalAss’n. There, they held that a method of extracting and then processing information from hard copy documents, including paper checks, was drawn to the abstract idea of collecting data, recognizing certain data within the collected data set, and storing that recognized data in a memory. In Content Extraction, the Federal Circuit explained that the concept of data collection, recognition, and storage is undisputedly well-known; indeed, humans have always performed these functions. Here, too, the claims recite basic steps of electronic check processing. In its background, the ’945 patent explains that “there has been an industry transition to the electronic processing of checks, including the recordation of the data… presented by the check into a digital format which can then be transferred electronically.” It had become standard for the merchant to capture the check’s transaction amount and MICR data at the point of purchase. Further, the patent’s background explains that verifying the accuracy of the transaction information stored in the digital file against the check was already common.

The Federal Circuit then analogized to other prior decisions.  Crediting a merchant’s account as early as possible while electronically processing a check is a concept similar to those determined to be abstract by the Supreme Court in Bilski v. Kappos, and Alice itself. In Bilski, the Supreme Court determined that claims directed to “the basic concept of hedging, or protecting against risk” recited “a fundamental economic practice long prevalent in our system of commerce and taught in any introductory finance class” and therefore “an unpatentable abstract idea.”  In Alice, the Supreme Court deemed “a method of exchanging financial obligations between two parties using a third-party intermediary to mitigate settlement risk” to be an abstract idea.  The desire to credit a merchant’s account as soon as possible is an equally long-standing commercial practice. Solutran argued that the claims “as a whole” are not directed to an abstract idea. The ’945 patent articulates two benefits of its invention: (1) “improved funds availability” because the merchant’s account is credited before the check is scanned or verified; and (2) relieving merchants of the task, cost, and risk of scanning and destroying paper checks by out-sourcing those tasks. The only advance recited in the asserted claims is thus crediting the merchant’s account before the paper check is scanned.  The Federal Circuit concluded that this is an abstract idea.

This is not a situation where the claims “are directed to a specific improvement to the way computers operate”as in cases such as Enfish, LLC v. Microsoft Corp.  Enfish is an example of a software patent that was held to be patent-eligible.  Patent applicants considering filing a new patent application should always ask themselves whether their invention can be framed in terms of somehow improving operation of the computer.

The physicality of the paper checks being processed and transported is not by itself enough to exempt the claims from being directed to an abstract idea. As the Federal Circuit explained in In re Marco Guldenaar Holding B.V., 911 F.3d 1157, 1161 (Fed. Cir. 2018), “the abstract idea exception does not turn solely on whether the claimed invention comprises physical versus mental steps.” In fact, “[t]he claimed methods in Bilski and Alice also recited actions that occurred in the physical world.”

Similarly, the Federal Circuit has determined that a method for voting that involved steps of printing and handling physical election ballots, Voter Verified, Inc. v. Election Sys. & Software LLC, 887 F.3d 1376 (Fed. Cir. 2018), and a method of using a physical bankcard, Smart Sys. Innova-tions, LLC v. Chi.Transit Auth., 873 F.3d 1364 (Fed. Cir. 2017), were abstract ideas. And the Supreme Court has concluded that diagnostic methods that involve physical administration steps are directed to a natural law. Mayo, 566 U.S. at 92. The physical nature of processing paper checks in this case does not require a different result, where the claims simply recite conventional actions in a generic way (e.g., capture data for a file, scan check, move check to a second location, such as a back room) and do not purport to improve any underlying technology.

The district court’s and Solutran’s reliance on the paper checks being processed in two“different location[s]”via two paths as preventing the claims from being directed to an abstract idea is also misplaced. The claims on their face are broad enough to allow the transaction data to be captured at the merchant’s point of purchase and the checks to be scanned and compared in the merchant’s back office. The location of the scanning and comparison—whether it occurs down the hallway, down the street, or across the city—does not detract from the conclusion that these claims are, at bottom, directed to getting the merchant’s account credited from a customer’s purchase as soon as possible, which is an abstract idea.

With regard to Step Two of the Alice test, the Federal Circuit disagreed with the district court that the patent claims “contain a sufficiently transformative inventive concept so as to be patent eligible.” Even when viewed as a whole, these claims “do not, for example, purport to improve the functioning of the computer itself” or “effect an improvement in any other technology or technical field.” (see Alice v CLS).  To the contrary, as the claims in Ultramercial did, the claims of the ’945 patent “simply instruct the practitioner to implement the abstract idea with routine, conventional activity.” As was noted above, the background of the ’945 patent describes each individual step in claim 1 as being conventional. Reordering the steps so that account crediting occurs before check scanning (as opposed to the other way around) represents the abstract idea in the claim, making it insufficient to constitute an inventive concept.  Any remaining elements in the claims, including use of a scanner and computer and “routine data-gathering steps” (i.e.,receipt of the data file),have been deemed insufficient by the Federal Circuit in the past to constitute an inventive concept.

To the extent Solutran argues that these claims are patent-eligible because they are allegedly novel and non-obvious,  the Federal Circuit has previously explained that merely reciting an abstract idea by itself in a claim—even if the idea is novel and non-obvious—is not enough to save it from ineligibility.  See, e.g., Synopsys, Inc. v. Mentor Graphics Corp., 839 F.3d 1138, 1151 (Fed. Cir. 2016)

Solutran also argued that its claims pass the machine-or-transformation test—i.e., “transformation and reduction of an article ‘to a different state or thing.’” While the Supreme Court has explained that the machine-or-trans-formation test can provide a “useful clue” in the second step of Alice, passing the test alone is insufficient to overcome Solutran’s failings under step two.  Merely using a general-purpose computer and scanner to perform conventional activities in the way they always have, as the claims do here, does not amount to an inventive concept. Because the claims of the ’945 patent recite the abstract idea of using data from a check to credit a merchant’s account before scanning the check, and because the claims do not contain an inventive concept sufficient to transform this abstract idea into a patent-eligible application, the claims were held to not be directed to patent-eligible subject matter.

In summary, using conventional hardware, such as a scanner, in a conventional manner in method claim is not sufficient to make a claim patent-eligible. In addition, the Bilski “machine or transformation” test is dead and should not be relied upon.

Post-CLS case on Software Patents, Ultramercial, Inc. v. Hulu, LLC, Federal Circuit 2013

Ultramercial sued Hulu, YouTube, and WildTangent for infringement of U.S. Patent No. 7,346,545.  The software patent generally relates to method for inserting ads in free online videos so that viewers must watch them before they can proceed.  Hulu and YouTube were eventually dismissed from the case.  WildTangent filed a
12(b)(6) motion to dismiss for failure to state a claim.  The District Court for the Central District of California held that the patent does not
claim patent-eligible subject matter.  On appeal, the Federal Circuit
reversed and remanded.  However, that decision was vacated by the
Supreme Court.

Claim 1 recites:
        A method for distribution of products over the Internet via a facilitator, said method comprising the steps of:
        a first step of receiving, from a content provider, media
products that are covered by intellectual property rights protection and
are available for purchase, wherein each said media product being
comprised of at least one of text data, music data, and video data;
        a second step of selecting a sponsor message to be associated
with the media product, said sponsor message being selected from a
plurality of sponsor messages, said second step including accessing an
activity log to verify that the total number of times which the sponsor
message has been previously presented is less than the number of
transaction cycles contracted by the sponsor of the sponsor message;
        a third step of providing the media product for sale at an Internet website;
        a fourth step of restricting general public access to said media product;
        a fifth step of offering to a consumer access to the media
product without charge to the consumer on the precondition that the
consumer views the sponsor message;
        a sixth step of receiving from the consumer a request to view
the sponsor message, wherein the consumer submits said request in
response to being offered access to the media product;
        a seventh step of, in response to receiving the request from
the consumer, facilitating the display of a sponsor message to the
consumer;
        an eighth step of, if the sponsor message is not an
interactive message, allowing said consumer access to said media product
after said step of facilitating the display of said sponsor message;
        a ninth step of, if the sponsor message is an interactive
message, presenting at least one query to the consumer and allowing said
consumer access to said media product after receiving a response to
said at least one query;
        a tenth step of recording the transaction event to the
activity log, said tenth step including updating the total number of
times the sponsor message has been presented;
        and
        an eleventh step of receiving payment from the sponsor of the sponsor message displayed.

Judge Rader noted first that it will be rare that a patent infringement suit can be dismissed at the pleading stage for lack of patentable subject matter. This is so because every issued
patent is presumed to have been issued properly, absent “clear and convincing” evidence to the contrary.  Second, the analysis under § 101, while ultimately a legal determination, is rife with underlying factual issues.   Third, and in part because of the factual issues involved,
claim construction normally will be required.  Fourth, the question of eligible subject matter
must be determined on a claim-by-claim basis.

The court then noted that 35 U.S.C. § 101 sets forth the categories of subject matter that are eligible for patent protection:
“[w]hoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title.” Underscoring its breadth, § 101 both uses expansive categories and modifies them with the word “any.” In Bilski, the Supreme Court emphasized that “[i]n choosing such expansive terms modified by the comprehensive ‘any,’ Congress plainly contemplated that the patent laws would be given wide scope.” 130 S. Ct. at 3225 (quoting Diamond v. Chakrabarty, 447 U.S. 303, 308 (1980)).

The Supreme Court has on occasion recognized narrow judicial exceptions to the 1952 Act’s deliberately broadened eligibility provisions. In line with the broadly permissive nature of § 101’s subject matter eligibility principles and the structure of the Patent Act, case law has recognized only three narrow categories of subject matter outside the eligibility bounds of § 101—laws of
nature, physical phenomena, and abstract ideas. Bilski, 130 S. Ct. at 3225. The Court’s motivation for recognizing exceptions to this broad statutory grant was its desire to prevent the “monopolization” of the “basic tools of scientific and technological work,” which “might tend to impede innovation more than it would tend to promote it.” Mayo Collaborative Servs. v. Prometheus Labs., Inc., 132 S. Ct.
1289, 1293 (2012) (“Prometheus”)

Though recognizing these exceptions, the Court has also recognized that these implied exceptions are in obvious tension with the plain language of the statute, its history, and its purpose.  Thus, this court must not read § 101 so restrictively as to exclude “unanticipated inventions” because the most
beneficial inventions are “often unforeseeable.”

In the eligibility analysis as well, the presumption of proper issuance applies to a granted software patent.

Defining “abstractness” has presented difficult problems, particularly for the § 101 “process” category. Clearly, a process need not use a computer, or some machine, in order to avoid “abstractness.” In this regard, the Supreme Court recently examined the statute and found that the ordinary, contemporary, common meaning of “method” may include even methods of doing business.
See Bilski, 130 S. Ct. at 3228. Accordingly, the Supreme Court refused to deem business methods ineligible for patent protection and cautioned against “read[ing] into the patent laws limitations and conditions which the legislature has not expressed.” Id. at 3226 (quoting Diamond v. Diehr, 450 U.S. 175, 182 (1981)).

In an effort to grapple with this non-statutory “abstractness” exception to “processes,” the dictionary provides some help.  Judge Rader referred to Merriam-Webster’s Collegiate
Dictionary 5 (11th ed. 2003) (defining abstract as “disassociated from any specific instance . . . expressing a quality apart from an object ”). An abstract idea is one that has no reference to material objects or specific examples—i.e., it is not concrete.

He noted that members of both the Supreme Court and the Federal Circuit have recognized the difficulty of providing a precise formula or definition for the abstract concept of abstractness.

A software patent claim can embrace an abstract idea and be patentable.  See Prometheus, 132 S. Ct. at 1294 (explaining that the fact that a claim uses a basic tool does not mean it is not eligible for patenting). Instead, a claim is not patent eligible only if, instead of claiming an application of an abstract idea, the claim is instead to the abstract idea itself.

In determining on which side of the line the software patent claim falls, the court must focus on the claim as a whole.

The Court has long-recognized that any software patent claim can be stripped down, simplified, generalized, or paraphrased to remove all of its concrete limitations, until at its core, something that could be characterized as an abstract idea is revealed. A court cannot go hunting for abstractions by
ignoring the concrete, palpable, tangible limitations of the invention the patentee actually claims.
Instead, the relevant inquiry is whether a claim, as a whole, includes meaningful limitations restricting it to an application, rather than merely an abstract idea. See Prometheus, 132 S. Ct. at 1297.

Judge Rader then considered an old example. The claims in O’Reilly v. Morse, 56 U.S. (15 How.) 62 (1854), and a case described therein, illustrate the distinction between a patent ineligible abstract idea and a practical application of an idea. The “difficulty” in Morse arose with the claim in which Morse did not propose to limit himself to the specific machinery or parts of machinery described in the specification and claims; the essence of him invention being the use of the motive power of the electric or galvanic current however developed for marking or printing intelligible characters, signs, or letters, at any distances. In considering Morse’s claim, the Supreme Court referred to an earlier English case that distinguished ineligible claims to a “principle” from claims “applying” that principle.

The Supreme Court repeatedly has cautioned against conflating the analysis of the conditions of patentability in the Patent Act with inquiries into patent eligibility. See Diehr, 450 U.S. at 190.

When assessing computer implemented claims, while the mere reference to a general purpose computer will not save a method claim from being deemed too abstract to be patent eligible, the fact
that a claim is limited by a tie to a computer is an important indication of patent eligibility. See Bilski, 130 S. Ct. at 3227. This tie to a machine moves it farther away from a claim to the abstract idea itself. Moreover, that same tie makes it less likely that the claims will pre-empt all practical applications of the idea.

This inquiry focuses on whether the claims tie the otherwise abstract idea to a specific way of doing something with a computer, or a specific computer for doing something; if so, they likely will be patent eligible. On the other hand, software patent claims directed to nothing more than the idea of doing that thing on a computer are likely to face larger problems. While no particular type of limitation is necessary, meaningful limitations may include the computer being part of the solution, being integral to the performance of the method, or containing an improvement in computer technology. See SiRF Tech., Inc. v. Int’l Trade Comm’n, 601 F.3d 1319, 1332-33 (Fed. Cir. 2010) (noting that “a machine,” a GPS receiver, was “integral to each of the claims at issue” and “place[d] a meaningful limit on
the scope of the claims”). A special purpose computer, i.e., a new machine, specially designed to implement a process may be sufficient. See Alappat, 33 F.3d at 1544.

In this case, the defending parties proceed on the assumption that the mere idea that advertising can be used as a form of currency is abstract, just as the vague, unapplied concept of hedging
proved patent-ineligible in Bilski.

The ’545 patent seeks to remedy problems with prior art banner advertising over the Internet, such as declining click-through rates, by introducing a method of product distribution that forces consumers to view and possibly even interact with advertisements before permitting access to the desired media product.

By its terms, the claimed invention invokes computers and applications of computer technology.
Specifically, the ’545 patent claims a particular internet and computer-based method for monetizing copyrighted products, consisting of the following steps: (1) receiving media products from a copyright holder, (2) selecting an advertisement to be associated with each media product, (3) providing said media products for sale on an Internet website, (4) restricting general public access to the media products, (5) offering free access to said media products on the condition that the consumer view the advertising, (6) receiving a request from a consumer to view the advertising, (7) facilitating the display of advertising and any required interaction with the advertising, (8) allowing the consumer access to the associated media product after such display and interaction, if any, (9) recording this transaction in an activity log, and (10) receiving payment from the advertiser. ’545 patent col. 8, ll. 5-48. Judge Rader noted that his court does not need the record of a formal claim construction to see that many of these steps require intricate and complex computer programming.

Even at this general level, it wrenches meaning from the word to label the claimed invention “abstract.” The claim does not cover the use of advertising as currency disassociated with any specific application of that activity. It was error for the district court to strip away these limitations and instead imagine some “core” of the invention.

Further, and even without formal claim construction, it is clear that several steps plainly require that the method be performed through computers, on the internet, and in a cyber-market environment. One clear example is the third step, “providing said media products for sale on
an Internet website.” Col. 8, ll. 20-21. And, of course, if the products are offered for sale on the Internet, they must be “restricted”—step four—by complex computer programming as well.

In addition, Figure 1, alone, demonstrates that the claim is not to some disembodied abstract idea but is instead a specific application of a method implemented by several computer systems, operating in tandem, over a communications network.  Almost all of the steps in this process, as explained in the flow chart of Figure 2, are tied to computer implementation.

Viewing the subject matter as a whole, the invention involves an extensive computer interface. Unlike Morse, the claims are not made without regard to a particular process. Likewise, it does not say “sell advertising using a computer,” and so there is no risk of preempting all forms of advertising, let alone advertising on the Internet.

Further, the record at this stage shows no evidence that the recited steps are all token pre- or post-solution steps.

Finally, the software patent claim appears far from over generalized, with eleven separate and specific steps with many limitations and sub-steps in each category. The district court improperly made a subjective evaluation that these limitations did not meaningfully limit the “abstract idea at the
core” of the claims.

Having said that, the Federal Circuit refused to define the level of programming complexity required before a computer implemented method can be patent-eligible. Nor did the court hold that use of an Internet website to practice such a method is either necessary or sufficient in every case to satisfy § 101. They simply held the claims in this case to be patent-eligible, in this posture, in part because
of these factors.