CAFC Reverses E.D. Texas on Payment Data Patent-Eligibility

The Federal Circuit has reversed Eastern District of Texas Judge Gilstrap’s denial of a post-trial motion for a judgment of patent-ineligibility under 35 U.S.C. § 101 of three patents directed to accessing and storing payment data. Smartflash, LLC v. Apple, Inc., No. 2016-1059 (Fed. Cir . March 1, 2017).  Chief Judge Prost, writing for a panel that included Judges Newman and Lourie, saved Apple from a jury verdict that claims of U.S. Patent Nos. 7,334,720; 8,118,221; and 8,336,772 were valid and infringed.

The patents share a specification and are all “generally” directed “to a portable data carrier for storing and paying or data and to computer systems for providing access to data to be stored.”  A representative claim was dependent claim 13, including its base independent claim 3, of the ’720 patent:

3. A data access terminal for retrieving data from a data supplier and providing the retrieved data to a data carrier, the terminal comprising:

a first interface for communicating with the data supplier;

a data carrier interface for interfacing with the data carrier;

a program store storing code; and

a processor coupled to the first interface, the data carrier interface, and the program store for implementing the stored code, the code comprising:

code to read payment data from the data carrier and to forward the payment data to a payment validation system;

code to receive payment validation data from the payment validation system;

code responsive to the payment validation data to retrieve data from the data supplier and to write the retrieved data into the data carrier; and

code responsive to the payment validation data to receive at least one access rule from the data supplier and to write the at least one access rule into the data carrier, the at least one access rule specifying at least one condition for accessing the retrieved data written into the data carrier, the at least one condition being dependent upon the amount of payment associated with the payment data forwarded to the payment validation system.

13. A data access terminal according to claim 3 integrated with a mobile communication device, a personal computer, an audio/video player, and/or a cable or satellite television interface device.

Before trial, Apple had filed a summary judgment motion seeking to invalidate all asserted claims under Section 101. However, although concluding that the asserted patent claims were directed to an abstract idea, the district court further

found that the claims recite meaningful limitations that transform the abstract idea into a patent-eligible invention because the claims “recite specific ways of using distinct memories, data types, and use rules that amount to significantly more than the underlying abstract idea."

Thus, even though some claims included language that was “functional and somewhat generic,” the district court denied Apple’s motion. And after Apple moved for JMOL after trial, the district court again denied Apple’s motion.

Turning to the first prong of the two-part Alice/Mayo patent-eligibility test, the court agreed with the district court “that the asserted claims were directed to the abstract idea of ‘conditioning and controlling access to data based on payment.’” Specifically, “[t]he asserted claims here invoke computers merely as tools to execute fundamental economic practices.”

Under the second prong of the patent-eligibility test, the court found that inventive concepts alleged by Smartflash in fact were “routine computer activities” that “are insufficient for conferring patent eligibility.” These concepts included storing transmitting, and writing payment data.  The court rebuffed Smartflash’s attempt to invoke DDR Holdings, LLC v. Hotels.com, L.P., 773 F.3d 1245 (Fed. Cir. 2014), explaining that the claims here were more like those in Ultramercial, Inc. v. HULU, LLC, 772 F. 3d 709 (Fed. Cir. 2014).  That is, the claims here merely recited use of the computer, unlike the DDR Holdings claims, which had no pre-Internet analog.

Finally, the court rejected Smartflash’s argument that it is claims recited a patent-eligible “ordered combination.” The claims simply recited “generic computer components” that “do not, taken individually or as an ordered combination, ‘transform [the] abstract idea into a patent-eligible invention.’” (Citing Alice.)

Lessons

While business methods patent can survive even at the Federal Circuit, claims that recite processing known types of data in known ways will always fail.  (Or almost always - DDR, anyone?)  One reading of this case is that a patent-friendly lower court gave life to patent claims that most other courts - including the Federal Circuit - routinely invalidate under Section 101 and the Mayo/Alice test.  That reading is probably the right one.