Card Verification v. Citigroup (N.D. Ill. 2014)
A growing number district court decision have followed the Supreme Court’s Alice Corp. decision by finding the asserted patent claims to be patent-ineligible as unduly encompassing an abstract idea.
In one recent decision, N.D. Ill. Judge Kendall has tepidly bucked the trend by denying a Fed R. Civ. Proc. R. 12(b)(6) motion for failure to state a claim — instead finding the asserted claims plausibly eligible.
The asserted patent claims cover a transaction verification method and the Judge agreed with defendant-Citygroup the general idea of verifying a transaction is an unpatentable abstract idea. (Claim 1 is pasted below. See Patent No. 5,826,245).
Moving to the second step of Alice, Judge Kendall found that the claims plausibly avoid the mental steps doctrine by requiring “pseudorandom tag generating software” and also plausibly requires a sufficiently concrete transformation so as to ground the abstract idea to a particular inventive implementation. Notably, for the second step, Judge Kendall did not draw the law from Alice, which seemingly required novelty in the ‘something more’ but instead quoted from the Federal Circuit’s 2013 holding that “additional substantive limitations [are required that] narrow, confine, or otherwise tie down the claim so that, in practical terms, it does not cover the full abstract idea itself.” Accenture Global Servs., GmbH v. Guidewire Software, Inc., 728 F.3d 1336, 1341 (Fed. Cir. 2013). Applying that law to the case, the court ruled that the claimed process of adding random number tags to data in the computer could be seen as “fundamentally altering the original confidential information.” With this analysis in hand, Judge Kendall denied the defendants’ motion to dismiss for failure to state a claim without prejudice.
The decision here is probably most important for its procedural stance. First, the defendants’ bold move was to file its motion to dismiss as a R. 12(b)(6) motion even before filing its answer to the complaint that would include defenses and counterclaims. Under Iqbal and Twombly, the complaint must state a claim that is ‘plausible on its face.’ Here, all that the court held was that the claim is plausible.
Although the outcome favored the patentee, the case is also a break from the tradition that a patent’s presumption of validity is generally sufficient to survive such a motion to dismiss. In Ultramercial, the Federal Circuit addressed a similar finding and held that dismissal at such an early stage is only appropriate when “the only plausible reading of the patent [is] that there is clear and convincing evidence of ineligibility.” Ultramercial, Inc. v. Hulu, LLC, 722 F.3d 1335 (Fed. Cir. 2013) vacated on other grounds 132 S. Ct. 24131 (2012). Of course, the clear-and-convincing standard is with regard to questions of fact while the eligibility inquiry is a question of law that depends upon few (if any) questions of fact.
= = = = =
Read the decision here: Kendall101
Claim 1:
A method for giving verification information for a transaction between an initiating party and a verification-seeking party, the verification information being given by a third, verifying party, based on confidential information in the possession of the initiating party, the method comprising:
on behalf of the initiating party, generating first and second tokens each of which represents some but not all of the confidential information,
sending the first token electronically via a nonsecure communication network from the initiating party to the verification-seeking party,
sending the second token electronically via a nonsecure communication network from the initiating party to the verifying party,
sending the first token electronically via a nonsecure communication network from the verification-seeking party to the verifying party,
verifying the confidential information at the verifying party based on the first and second tokens, and sending the verification information electronically via a nonsecure communication network from the verifying party to the verification-seeking party.
Dennis Crouch wrote: “Security Software Patent Not Yet Ruled Ineligible.”
How could there be any question about the eligibility of this claim in light of the “Integration Analysis” from Mayo and Alice?
The claim is clearly an “Integrated” technological process. Therefore there is no need to proceed to step two of the Alice two step test. However, for the sake of argument let’s assume one of the District Court Judges distills the invention down to the gist, as is their trend, and then declares the invention directed to the abstract idea of verifying a transaction.
Even then the Supreme Court in Mayo made it explicitly clear that the exception, (in this example an abstract idea of verifying a transaction) “must” be “Integrated” {to the point} it no longer covers/pre-empts the exception itself. ( See Alice, Mayo)
So the Judge must proceed with the Integration Analysis and determine if the claims pre-empt. In this case it does not appear the claims pre-empt, thus the claims are legally Integrated and are patent eligible subject matter.
You bring up another point that the District Courts are getting wrong. A few have begun to beat the “novelty has no relevance to the 101 inquiry” drum. Let’s push aside the fact that nearly everyone who has read Alice agrees that SCOTUS (at least implicitly) dumped a 102/103 type inquiry into 101.
If we’re talking about the overarching goal of the abstract idea exception – weeding out claims that, if otherwise allowed to stand, would preempt an abstract idea – how is novelty not relevant to the second part of the Alice test?
For instance, let’s assume X is a longstanding fundamental economic practice – an abstract idea. Let’s assume that everyone agrees that Claim 1 is “directed to” or “includes” or “whatever else” abstract idea X and is novel over the art of record.
How is the fact that Claim 1 is admittedly novel not relevant to the preemption inquiry? Put another way, how can Claim 1, which has never before existed, preempt a longstanding fundamental economic practice?
“How is the fact that Claim 1 is admittedly novel not relevant to the preemption inquiry?”
You make an excellent point! Of course it will be completely ignored by the anti patent crowd since they have no legal argument to overcome it.
Hmmm…It could have something more.
But is it obvious if not fully anticipated by David Chaum’s more secure trustee based splitting cryptography from the 80’s, and 90’s or as a time spaced version of secret sharingclothed as not quite as secret sharing? Wait and watch blatherspoken token and tag assertions get distanced from innovation that might have been.
Looking ahead in this case as it continues to move forward:
link to arstechnica.com
US District Judge Denise Cote found the Lumen View patent invalid in November, saying it described nothing more than a computerized version of “matchmaking,” an ancient process. In June, she ordered Lumen View to pay FindTheBest’s legal fees, ruling the case was exceptional.
After hearing from both sides, Cote has settled on an amount: $302,083.63. That includes $148,592 in attorneys’ fees enhanced by a multiplier of two, as well as $4,899.63 in costs. They also have been awarded nine percent interest—a little bit better than your savings account, right?—beginning on May 30.
The reward is almost exactly what FindTheBest asked for, and it was multiplied by two because of Lumen View’s egregious behavior, including threats of “full-scale litigation” with “protracted discovery” and a settlement demand escalator.
B-b-b-ut it’s presume v-v-v-alid!
This is how a working patent system deals with bottom-feeding extortionists.
More, please.
FindTheBest CEO Kevin O’Connor noted that getting the money won’t be easy.
“We are thrilled that Judge Cote recognized the frivolous nature of the case and awarded us double our fees, but the reality is that being awarded fees and collecting fees are two entirely different things,” said O’Connor. “”We believe we’ll be able to pierce the corporate veil in order to seek justice, even if it ends up costing us more than the award itself. At this point, it’s about justice and protecting future innovation from these trolls. In addition, we feel that Judge Cote’s decision further strengthens our RICO claims, and we fully intend to continue to pursue that case.”
Anybody still wondering why the people who engage in endless apologetics to defend the worse claims out there are uniformly the same people who insist on their “right” to keep their ownership interests in such patent claims hidden from the public? I hope not.
“Anybody still wondering why the people who engage in endless apologetics to defend the worse claims out there are uniformly the same people who insist on their “right” to keep their ownership interests in such patent claims hidden from the public?”
Gotta keep er a secrit!
MM, why was the case exceptional?
A link to the June ruling would be helpful to understand this important issue.
Ned,
opinion at ArsTechnica
Per journalist Joe Mullin:
“. . . it was multiplied by two because of Lumen View’s egregious behavior, including threats of “full-scale litigation” with “protracted discovery” and a settlement demand escalator. The regular “lodestar” award would be too low, because it wouldn’t deter the troll’s bad behavior in the future.“
Dobu, I was looking for this:
On May 30, FTB’s motion seeking a declaration that this is an exceptional case was granted. Lumen View Tech. LLC v. Findthebest.com, Inc., 13cv3599 (DLC), 2014 WL 2440867, at *6 (S.D.N.Y. May 30, 2014) (“May 30 Opinion”). The May 30 Opinion is incorporated by reference and familiarity with that decision is assumed.
The May 30 opinion is available here
Oh, my. My favorite part, so far:
In “late June or early July” O’Connor telephoned Eileen Shapiro, one of the inventors of the ‘073 Patent. Following a conversation between Shapiro and O’Connor, Lumen’s attorney represented to FTB’s attorney that O’Connor had committed a hate crime under Ninth Circuit law by using the term “patent troll.” FTB’s attorney contends that Lumen’s attorney threatened to pursue criminal charges unless FTB apologized, financially compensated Shapiro and Lumen’s attorney, and settled the litigation by paying Lumen a licensing fee in connection with the ‘073 Patent. FTB’s attorney claims that Lumen’s attorney stated that the offer was only good until the close of business that day and that FTB should “act quickly.”
Is anyone familiar with the Ninth Circuit law that makes the use of the term “patent trol1” a hate crime?
Lumen’s attorney represented to FTB’s attorney that O’Connor had committed a hate crime under Ninth Circuit law by using the term “patent troll.”
We all know that the only thing patent trolls love more than threatening people with lawsuits is making giant batches of their own kool-aid and drinking every last drop.
That’s what happens after the barrel is emptied.
You guys think only NPE trolls bottom feed and behave in this manner?
I’ve been getting nastygrams from IBM Kenexa talking about defamation and unfair competition since 2013- all the way up to a subpoena served on me PERSONALLY – seeking inter alia, all of my comments on PatentlyO or anything I have ever said about patents.
I’ve been taking it easy here both to respect our attorney’s wishes and because of Dennis’ efforts to calm things down, but this is just too on-the-nose to pass up….
But my friends, if its an old shitty patent claiming the worst computerized junk, acquired from originally disreputable failures, down thru multiple bankruptcies and pressed to the hilt against a non-competing company thousands of times smaller with constant outrageous settlement demands in the face of completed discovery ….its trolling- whether NPE or our most illustrious patent system user.
But if you troll someone who punches above their weight, and who just happens to have the most exacting of prior art, and you tout your white hat in the patent world at every turn….well, this is what you get.
And maybe lots more if there is justice to be found in Boston.
We participated in the amici for Alice- so did IBM. Will this stupid hill be the one they march up on section 101?
Stay tuned to this blog to find out 😉
Wow.
MM, validity had nothing to do with the exceptional case. The case was based primarily on the impossibility of infringement given the publicly available facts.
From the May 30 opinion:
“Lumen contends that it was entitled to rely on a duly issued patent. The invalidity of the ‘073 Patent plays no role in the reasoning underlying this Opinion. The question addressed here is whether Lumen could properly assert infringement based on the ‘073 Patent.”
link to eff.org
This is a little stupid. Iqbal and Twombly are the pleading standards. But on a motion to dismiss, the Court can also decide issues of law (such as 101). I’m guessing that Citigroup didn’t just move to dismiss for failure to properly plead, but because the patent was unpatentable under 101 as a matter of law.
Without reading the order or briefs, this just strikes me as the judge being lazy and not wanting to decide the issue now. Instead, the parties are going to spend lots of money over the next year arguing and re-arguing whether the patent is eligible, taking discovery, etc.
If any of that is needed to decide the 101 issue (e.g., claim construction), then great. But just relying on “plausibility” is stupid when we are talking about an issue of law, not fact.
this just strikes me as the judge being lazy
Indeed, and particularly here when it takes about five minutes to read the entire patent and about the same length of time for a thoughtful person to comprehend what the claims (as oppposed to a flowchart in the specification) protect. The fact that the claims are poorly written shouldn’t be a factor that weighs in favor of the patentee’s monetizing scheme.
Everyone should take a step back and notice the bizarre nature of the comments. Rather than being a test as outlined in Graham and being supported by evidence, we have pontificators who tell us whether they feel the claims are eligible under 101. This is not law. Voo-doo law is Alice.
Right. It’s really “bizarre” to see a discussion about the eligibility of a junky software patent on a patent blog.
a test as outlined in Graham
Ah yes: that’s the kind of “judicial activism” that is gleefully embraced by the oh-so-principled defenders of junky software patents. Go figure.
Knock them out under 102/103 instead.
Knock them out under 102/103 instead.
Why on earth would I bother?
101 makes perfect sense and then I don’t have to worry about paying an expert to expound on those nonsensical “secondary factors”.
Nor do I have to pay to rebut silly self-serving patentee arguments like “the reference doesn’t say the word ‘computer’ therefore it teaches away from using a computer”. Or “if you accept that argument then all automobile claims are obvious because a car just automates the process of walking.” Or (still a favorite) “keeping track of items in a list that aren’t selected is totally different from keeping track of the items that are selected.”
Yeah it is real bizarre when it is based on your feelings.
Just another thumb-in-your-eye post by MM.
So, you defend your sniff test. And this string of posts should suggest to everyone that this is not a good test as it depends who is doing the sniffing.
you defend your sniff test.
I use my eyes and my brain.
You should try it sometime.
Another non-substantive thumb-in-the-eye by MM.
I’m really, really, really sad that I can’t attain the high standards set by awesomely substantive comments such as “we have pontificators who tell us whether they feel the claims are eligible under 101. This is not law. Voo-doo law is Alice.”
Really sad.
What is really sad is that you post on blogs for 10 hours a day and yet manage to away with not being called a professional.
My post accurately characterized the current state of 101 law.
Eight years and running…
…”healthy ecosystem”
or something.
Regarding this “fundamentally change” nonsense here’s what the spec says (reminder: the independent claims that are asserted do not require any random number generation whatsoever):
The software includes a random number or character generator which issues a four-digit pseudorandom tag. The same tag is added to both pieces of the credit card number. The random tag is attached to the end of one piece and to the beginning of the other piece, so that the verification agent may easily tell which piece comes first in reconstructing credit card number ….
The tags in the pieces of credit card numbers received by the verification agent are isolated by pattern recognition and matching or through a convention that the tag is always at the beginning or end of the number.
Let’s say my “confidential information” is “masterpiece”. Here’s the “fundamental change” covered by this fantastically complicated and sooper dooper “technical” (and, oh yes: older than the hills) device:
masterpiece => master0 0piece
That’s your “fundamental” alteration. That’s the magical change that this judge is relying on to give these patentees some more time to figure out how to monetize their junky patent that should never have been granted.
Isn’t it faster to reject it over pig latin?
It is also an old technique – called “padding”.
Dennis: Applying that law to the case, the court ruled that the claimed process of adding random number tags to data in the computer could be seen as “fundamentally altering the original confidential information.”
Another commenter noted this earlier but the judge appears to have confused the flowchart in the specification with what is actually required by the claims.
The independent claims, including the asserted claim 22, do not require a “random number generator.” (claim 22, in fact, is broader than the claim presented by claim 1)
22. A method for use in relation to providing verification information for a transaction between an initiating party and a verification-seeking party, the verification information being given by a third, verifying party, based on confidential information in the possession of the initiating party, the method comprising:
on behalf of the initiating party, generating first and second tokens each of which represents some but not all of the confidential information,
on behalf of the initiating party, sending the first and second tokens electronically via a nonsecure communication network,
collecting the first and second tokens at the verifying party,
verifying the confidential information at the verifying party based on comparing the first and second tokens, and
sending the verification information electronically via a nonsecure communication network from the verifying party to the verification-seeking party.
As I already, the key term “nonsecure” is undefined. The key term “token” is defined by example in the specification and include the situation where “The tokens together may represent all of the confidential information.” In other words, the tokens can simply be the “confidential information” divided into two parts.
So here we have a claim that covers a “verifying party” receiving some information in two parts, combining it, and forwarding it to a “verification seeking party.”
Once it’s recognized that these abstract terms (“initiating party”, “verifiying party” and “verification seeking party”) are structurally meaningless limitations, it becomes even easier to see why such claims are junk and why the granting of such claims creates all kinds of eligibility issues.
You can’t protect information with patents.
Your claim can not prevent me from using an old device to send information — ANY INFORMATION — to anybody else. If it does, your patent is going to end up in the trash (assuming you try to assert it against someone who isn’t interested in playing the same silly games that you’re playing).
“The decision here is probably most important for its procedural stance. First, the defendants’ bold move was to file its motion to dismiss as a R. 12(b)(6) motion even before filing its answer to the complaint that would include defenses and counterclaims.”
This is quite typical. Only rarely do you file the 12(b) motion WITH the answer/counterclaims. And you can’t file it later..
In related news:
link to mashable.com
A comparison of stability performance shows a microplane using conventional sensing versus a plane using the natural option. The bird-inspired system creates a much stable end result….
The researches have lodged a patent for the innovative system.
Hope the invention doesn’t use any of that dreaded “software” – you know, to control the plane computer or something awful like that.
It would probably more or less follow the model of Diehr which passes 101.
To tell the truth lots of patents since the 80s have pertained to tightly coupled hardware software systems, e.g., Kempf’s original bridge patent and all the RAID system patents of the 90s.
The specs tend to gloss over the software component.
To tell the truth, such patent applications should have been rejected for failing to satisfy enablement or written description requirements, but it appears that fuzziness about the software was the only way to get such patents through prosecution.
dreaded “software”
Nobody has any “dread” of software, JNG.
But a lot of people are disturbed by the manner in which the desire to coddle software applicants has warped the patent system.
Huge difference there.
I see no evidence of coddle.
What evidence do you have?
You don’t see all the junk patents?
But they’re business method and not “software” patents (not sure what a “software” patent is considering software has to run on hardware).
they’re business method and not “software” patents
Not true.
Some are business method patents, some are software patents directed towards a business model, and some are just computer-implemented junk.
And the junk software patents still flow – though finally the courts are starting to reduce that.
Still waiting for evidence of coddle…
Among reams of other evidence:
2. A system of computerized meal planning, comprising:
a User Interface;
a Database of food objects; and
a Meal Builder, which displays on the User Interface meals from the Database, and wherein a user can change content of said meals and view the resulting meals’ impact on customized eating goals.
Stop trolling the blog, please.
Sorry Malcolm, but my polite but firm – and easily allowed in any court – answer has not been allowed here.
Must have been an “ecosystem” thing or something.
What evidence do you have?
Here’s some evidence. From Patent No. 6,585,516, featured on these pages just a day or two ago:
2. A system of computerized meal planning, comprising:
a User Interface;
a Database of food objects; and
a Meal Builder, which displays on the User Interface meals from the Database, and wherein a user can change content of said meals and view the resulting meals’ impact on customized eating goals.
This kind of stuff cruises through prosecution, presumably because a keyword search on “Meal Builder” doesn’t get any hits in the patent databases. Meanwhile, claims on real technology are subjected to month after month of bogus rejections because they use actual technical terms that are well understood in the art and thus result in lots of keyword matches, which much of the examining corps equate to obviousness.
Most of the patents I write involve software, but the claims are about technical solutions to technical problems. The people who file and litigate stuff like claim 2 above are screw!ing things up for the rest of us.
That’s not evidence – you use that word, but I do not think that you understand what that word means.
I think that you are impugning the examiners instead.
I think that you are impugning the examiners instead.
Nice try, anon.
I do not understand your reply at 17.2.1.2.1.1, DanH.
Your post at 17.21.2 clearly “blames” examiners – as it is examiners that do not correctly examine by mere keyword searching (and incorrectly attributes this as evidence of coddling).
Did I misstate anything that you posted?
Did I say anything about you misstating anything that I posted?
For whatever reason, you’ve picked today to intensify your trol1ing, and are trying to pick fights wherever you can. Like I said, nice try.
Sorry DanH but I was not tr011ing or attempting to pick a fight.
There is a clear difference between bad examination (what you offered as evidence) and what coddling means. If asking for evidence for a rather serious accusation is “picking a fight” or “tr011ing”, then we have – once again – some rather blatant double standards at work here.
btw, still no evidence of coddling has been provided…
Looks like evidence of coddle to me. Or maybe just evidence of some huge confusion on 101 back in the day. Either or.
“Hope the invention doesn’t use any of that dreaded “software” – you know, to control the plane computer or something awful like that.”
It doesn’t matter. The invention is to use the “bird-inspired” “natural option”.
Clearly, any claim would attempt to capture an old (fifth day I think) natural phenomenon, law or product of nature. Therefore, its an abstract idea.
Hey guys btw buzz aldrin is coming to madison auditorium on nov. 6. Need to get tix tho.
Get Your Tickets Now to See Apollo Astronaut Buzz Aldrin November 6
Dr. Buzz Aldrin an engineer, fighter pilot, astronaut, patent owner, and Apollo 11 moonwalker, will speak at the USPTO Thursday, November 6 from 11 a.m. – noon ET in the Madison Auditorium on the Alexandria campus
link to eventbrite.com
Get him to tell the story about being the first man to pee on the moon. (spoiler alert: he was still on the ladder, so, I don’t think it counts.)
When he punched the nut who was way up in his face denying the moon landings, he made my all-time list of characters.
The claims stake out a possibly “new and useful process” for organizing the actions of electronic devices. It seems to pass 101 muster as do electronic authentication, verification, and network protocols in general even if patenting them often does not make much sense.
On the other hand does it pass 102, 103, or 112? There was a lot of work back in the 70s and 80s on similar sorts of verification protocols, and verification protocols have a long history going back into the pre-modern period in espionage, in the military, in international relations, and in banking.
By 1995 this sort of protocol may have been obvious and lost all novelty.
If I wrote a patent specification and claims back in the 1980s time frame for Kerberos, the X Protocol, or DEC STP, I would have tried to achieve a lot more specificity both in the body and the claims.
I think I could argue that the inventor is trying to benefit both from patent protection and from maintaining trade secrets. Thus the patent has some serious 112 issues.
link to vox.com
record numbers of patents coming out ma patent office and yet the economists are blaming the sluggish econ on a “slowdown in technological progress”. Maybe someone should inform them that we’re issuing more entitlements for supposed technological progress than ever. Not to mention we’re probably issuing more entitlements for actual technological progress than ever. I wonder if, gasp, the amount of entitlements granted don’t really indicate “technological progress” all that well.
Dennis, I’m going to say something that everyone here will agree with (which doesn’t happen regarding 101 cases very often). I think the title was supposed to read “not yet ruled ineligible” instead of “net yet”
Thanks!
Thank you Judge Kendall for making the correct call and doing the right thing.
May others take note of your logic and wisdom.
A system comprising a computer readable storage media, wherein the computer readable storage media contains [Data A]; a processor for receiving the computer readable media; and a display for displaying [Data A].
[Data A] is the only difference between the prior art and the invention. [Data A] is arguably nonobvious and novel.
Does it matter what [Data A] is? Do you think there are some situations where if [Data A] is nonobvious, novel (or maybe even useful) enough the claim should be eligible?
I’m curious what you all think.
Does it matter what [Data A] is?
Of course not.
Does it matter what new, non-obvious and useful recipes are printed on the pages of the newly published cookbook? Nope.
There’s no distinction whatsoever. Not in 2014. Not in 1970.
Remember: cert denied in ABL, which was pretty much the same fact pattern you presented. None of the Supremes needed to waste any time on that one.
How about the new and novel method steps that are performed by the computer that would not occur without the data? Your recipe analysis is not even remotely analogous.
How about the new and novel method steps that are performed by the computer that would not occur without the data?
Oh boy, here we go again. What fun.
The pages reflect different light patterns containing different information than they do “without the data.”
Your recipe analysis is not even remotely analogous.
In fact it’s perfectly analogous which is why claims like ABL’s will never be enforceable against any defendant with half a brain and an ounce of spine.
But go ahead and bilk some people out of their money telling them differently. Freedom!
That’s the best you’ve got? Please. How does the recipe cause the book do anything close to the method steps claimed above?
Try harder MM.
“How does the recipe cause the book do anything close to the method steps claimed above?”
By my building a compooter to do those things when fed the recipe?
That’s the best you’ve got? Please. How does the recipe cause the book do anything close to the method steps claimed above?
Let’s ignore the fact you clearly don’t understand the non-functional printed matter rule: Are you seriously arguing whether a government subject to the first amendment has the power to grant an exclusionary right on novel information?
Bluto: How does the recipe cause the book do anything close to the method steps claimed above?
I already told you. Here it is again since you somehow missed it the first time: The pages reflect different light patterns containing different information than they do “without the data.”
A machine can read those light patterns and it’s “functionality” can be altered as a result.
This is basic stuff. And it’s why claims to new displays that are distinguishable from old displays only on the basis of their information content are ineligible for patenting, just like books are.
Books = old manufacture
Computer/display = old manufacture
You can’t take these old things and render them patent-worthy again merely by reciting some information content. Such claims protect the information itself which is a big no-no.
Learn this. Figure it out. It’s not hard.
“claims like ABL’s will never be enforceable against any defendant with half a brain and an ounce of spine.”
Half a brain, half a spine, and half a million dollars laying around he doesn’t mind spending on frivolous litigation.
As usual, the victims of the trolls and the patent maximalists are the actual inventors, startups, and small companies.