Check Fraud Prevention Patent Passes Bilski Test

Saying the issue was a “close call,” a Missouri court has ruled that method and apparatus claims directed to using encrypted codes to prevent check fraud are patent-eligible under 35 U.S.C. § 101.  Advanced Software Design Corp. v. Fiserv, Inc., No. 4:07CV185 (E.D. Mo. May 15, 2012).  The question came before the Court on the defendant's motion for summary judgment.  Although this case paid a visit to the Federal Circuit in 2011, Section 101 eligibility was not then at issue.

Claim 1 of U.S. Patent No. 6,729,110, the patent at issue, recites:

A process of validating a negotiable financial instrument made by a payor, in which selected information found on the financial instrument which varies for each instantiation of the financial instrument made by the same payor is encrypted in combination with key information not found on the financial instrument to generate a control code which is printed on the financial instrument along with the selected information, the process comprising:

reading the selected information from the financial instrument; and

one of (i) decrypting the control code to thereby obtain decrypted information whereby the cheque validator may refuse to honour the financial instrument if the selected information found on the financial instrument does not match the decrypted information, and (ii) re-encrypting the selected information as presented on the financial instrument to re-obtain a second control code, whereby the cheque validator may refuse to honour the financial instrument if the second control code does not match the control code printed on the financial instrument.

After reviewing U.S. Supreme Court precedent, including Mayo Collaborative Servs. v. Prometheus Labs, Inc., 132 S. Ct. 1289 (2012) and Bilski v. Kappos, 130 S. Ct. 3218 (2010), the Court stated that “[b]oth the Supreme Court and the Federal Circuit recognize that § 101 is meant to allow patentability of most new processes or systems.”  Analyzing independent claims 1 and 9 of the ’110 patent, the Court applied “the machine or transformation test, which Bilski found was still a useful tool.”  Further, the Court thought that the claims met the machine or transformation test and were distinguishable from claims in Cybersource Corporation v. Retail Decisions Inc., 654 F.3d 1366 (Fed. Cir. 2011), and Dealertrack, Inc. v. Huber, 674 F.3d 1315 (Fed. Cir. 2012).

In essence, the Court found that the claims as a whole, taken in context, required use of a specially-programmed computer, and were thus like the claims in Ultramerical, LLC v. Hulu, LLC, 657 F.3d 1323 (Fed. Cir. 2011).  Even though claim 1 did not actually mention any machine, “the specification regarding the re-encryption or decryption steps contemplates use of a computer to perform those steps.”  Further, claim 9 explicitly recited a scanner and a data processing device.  While the scanner's mere data-gathering function “may not be sufficient to confer patentability,” programming the data processing device “to perform the re-encryption or decryption functions” made it a special-purpose computer that satisfied patent-eligibility requirements.

The Court did reject the plaintiff's argument that the defendant had not timely raised the question of patent-eligibility.  Section 101 was addressed in the defendant's “affirmative defenses and counterclaims, and after the case was remanded from the Federal Circuit, [the defendants] again indicated an intention to file this motion.”  Also, an argument that the defendant had allegedly made in another case was irrelevant because “this motion presents a question of law.”

Even setting aside the fact that there is at least some chance that Ultramercial could be reversed by the Supreme Court, the decision in this case certainly illustrates the uncertainty and inconsistency presently pervading Section 101 jurisprudence.  Consider a few other recent patent-eligibility cases decided by the district courts.  In a case that seems very similar to this one, a Florida district court recently held that claims using a computer for managing financial instruments were not patent-eligible.  On the other hand, the Eastern District of Texas found patentable subject matter in claims directed to determining Current Procedural Technology (“CPT”) codes based on information gathered during a physician-patient encounter.  And the Court in the present case did not mention Fort Properties v. American Master Lease, No. 2009-1242 (February 27, 2012), in which the Federal Circuit held that patent claims directed to “an investment tool designed to enable property owners to buy and sell properties without incurring tax liability” were not patent-eligible.  There are other fairly recent Section 101 cases to consider, not to mention the plethora of not-always-easy-to-reconcile patent-eligibility cases since Bilski.

In any event, one has to think that if this case gets back to the Federal Circuit, the question of the patent-eligibility of these claims will be hotly contested--and in some doubt.