Loyalty Conversion Systems v. American Airlines (E.D. Texas 2014) LoyaltyConversion101Decision
Data processing and business method patents continue to fall like dominoes. In this case, Federal Circuit Judge Bryson – sitting by designation in the Eastern District of Texas – has determined on the pleadings that Loyalty’s reward-program patent is ineligible based upon the recent Supreme Court cases of Alice Corporation Pty. Ltd. v. CLS Bank International, 134 S.Ct. 2347 (2014) and Mayo Collaborative Servs. v. Prometheus Labs., Inc., 132 S.Ct. 1289 (2012).
Loyalty’s two patents are recently issued but claim priority back to a 2006 filing. U.S. Patent Nos. 8,313,023 (“the ′023 patent”) and 8,511,550 (“the ′550 patent”). The inventors appear to be corporate lawyer Sean McGhie and patent attorney Brian Buchheit. The litigation is apparently being controlled by ITUS Corp (Robert Berman) although no assignments are listed for the patents in the US Patent Office website.
The basic goal behind the invention is to open-up the buying power of customer reward points. This goal is accomplished by allowing customers to transfer reward-points (and their typical limited buying power) for a more negotiable instrument. The claims include a number of computers sending, displaying and storing messages back and forth in order to accomplish the aforementioned goal. However, the patent proposes no advance in computer technology per se, other than perhaps being the first to propose the sending and storing of messages in the particular sequence identified.
Judge Bryson writes:
Notwithstanding the prolixity of the claims, they recite a very simple invention: a computer-driven method and computer program for converting one vendor’s loyalty award credits into loyalty award credits of another vendor. In principle, the invention is thus the equivalent of a currency exchange as applied to loyalty award credits such as airline frequent flyer miles or hotel loyalty award points. The Court concludes that the invention claimed in the ′023 and ′550 patents is not fundamentally different from the kinds of commonplace financial transactions that were the subjects of the Supreme Court’s recent decisions in Bilski v. Kappos, 130 S. Ct. 3218 (2010), and Alice Corporation Pty. Ltd. v. CLS Bank International, 134 S.Ct. 2347 (2014), in which the Court held patent claims invalid for failing to recite patentable subject matter. This case falls squarely within the principles announced in those cases. Accordingly, the Court holds that the asserted claims of the ′023 and ′550 patents are invalid. . . .
In light of Bilski and CLS Bank, the resolution of the section 101 issue in this case is straightforward. At their core, the asserted claims of the two patents in suit are directed to the conversion of loyalty award points of one vendor into loyalty award points of another. That core idea plainly would not be patentable without more, as it is indistinguishable in principle from the simple and familiar financial or business operations that were at issue in Bilski and CLS Bank, as well as similar financial operations at issue in various Federal Circuit decisions in which the claims were held to be invalid under section 101. See Accenture Global Servs., GmbH v. Guidewire Software, Inc., 728 F.3d 1336 (Fed. Cir. 2013) (“system for generating tasks to be performed in an insurance organization”); Bancorp Servs., L.L.C. v. Sun Life Assurance Co., 687 F.3d 1266 (Fed. Cir. 2012) (method for managing a life insurance policy, including generating the policy, calculating fees, and determining the surrender value and investment value of the policy); Dealertrack, Inc. v. Huber, 674 F.3d 1315 (Fed. Cir. 2012) (method for processing credit applications); Fort Props., Inc. v. Am. Master Lease LLC, 671 F.3d 1317 (Fed. Cir. 2012) (method for creating a real estate investment instrument adapted for performing tax-deferred exchanges); CyberSource Corp. v. Retail Decisions, Inc., 654 F.3d 1366 (Fed. Cir. 2011) (method for verifying the validity of credit card transactions). If anything, the conversion process at the core of the claims in this case is simpler and more commonplace than some of the methods held unpatentable in the cases cited above.
Regarding the computer technology elements of the claim, Judge Bryson dismissed those as “largely functional in nature” and that the resulting claims “do little more than set forth the general concept of currency exchange, as applied to loyalty awards, and then announce the use of ‘one or more’ computers to obtain various efficiencies in the process of converting one type of loyalty award credits into another.” In the decision, Judge Bryson stepped through each of the technological limitations of the asserted claims and concluded that none offered the ‘something more’ required by the Supreme Court.
= = = =
Procedurally, this case is important as a dismissal-on-the-pleadings — i.e., quite early in the case. For defendants – this means a major cost savings.
The standard for this type of dismissal are defined by Rule 12(c) of the Federal Rules of Civil Procedure and is “designed to dispose of cases where the material facts are not in dispute and a judgment on the merits can be rendered by looking to the substance of the pleadings and any judicially noticed facts.” Great Plains Trust Co v. Morgan Stanley, 313 F.3d 305 (5th Cir. 2002). The approach is akin to summary judgment and considers: “whether, viewed in the light most favorable to the plaintiff, the complaint states a valid claim for relief.”
The dismissal on the pleadings is somewhat workable here because subject matter eligibility is a question of law that is largely based upon an introspective look at the patent document. Of course some outside reference points are: is it an inventive concept? Further, a case potentially turn on claim construction. In his opinion, Judge Bryson recognized these complications but noted that the parties “have not pointed to any factual issues that could affect” the eligibility analysis. Further, Judge Bryson waited to make his decision until after a claim construction hearing to likewise ensure that claim construction would not affect the outcome of the 101 analysis.
= = = =
Claim 1 of the 550 patent is as follows:
- A method comprising:
a computer serving a set of one or more Web pages for a loyalty program of an entity to one or more remotely located client machines, wherein the Web pages are able to be rendered within a client-side browser as a graphical user interface on the one or more client machines, wherein upon being rendered within the client-side browser said graphical user interface shows a quantity of nonnegotiable credits, wherein said non-negotiable credits are loyalty points of the loyalty program possessed by a member, wherein upon being rendered within the client-side browser the graphical user interface comprises a conversion option to convert at least a subset of the shown non-negotiable credits into a quantity [of] entity independent funds, wherein said entity independent funds are different loyalty points of a different loyalty program of a commerce partner, wherein said entity independent funds are possessed by the member, wherein an agreement exists between the entity and the commerce partner, wherein the agreement permits members to convert the non-negotiable credits to the entity independent funds in accordance with a fixed credits-to-funds conversion ratio, wherein the agreement specifies that the entity is to compensate the commerce partner in an agreed upon amount of cash or credit for conversions of non-negotiable credits to entity independent funds, wherein said agreed upon amount is a multiple of a quantity of converted non-negotiable credits, wherein the entity independent funds are redeemable per the different loyalty program for commerce partner goods or for commerce partner services, wherein the commerce partner is not said entity, wherein in [the] absence of being converted the non-negotiable credits are not accepted as payment for commerce partner goods or for commerce partner services;
the computer responsive to receiving a message indicating a selection of the conversion option, processing the selection to effectuate changes in the served set of Web pages; and
responsive to the processing, the computer serving one or more Web pages or Web page updates that include the effectuated changes to the one or more remotely located client machines, wherein upon being rendered within the client-side browser the graphical user interface is updated with the effectuated changes, wherein the updated graphical user interface shows a reduced quantity of non-negotiable credits possessed by the member in the loyalty program, said reduced quantity resulting at least in part from the subset of non-negotiable credits being converted into the quantity of entity independent funds in accordance with the fixed credits-to-funds conversion ratio.