2021

Boom! You Can’t Patent an Escrow Method

Patent

Boom! Payments, Inc. v. Stripe, Inc. (Fed. Cir. 2021)

I used to play golf fairly regularly and got into the habit of announcing “BOOM!” on every drive.  It didn’t help my game.  BOOM!’s great name here also didn’t save its patent from dancing the Alice Two Step. (Note: I was 15 years old at the time–on my high-school freshman team getting free-rounds for the season). 

This case is another affirmance of a dismissal for lack of patent eligibility. Under Alice/Mayo, the Supreme Court’s patent eligibility analysis is a two step process.  At Step 1, the court asks whether the claims at issue are “directed to” a patent-ineligible concept, such as an abstract idea. Claims that fail Step 1 can be saved by Step 2, looks for “something more” beyond the ineligible concept sufficient to transform the claim’s nature into a patent eligible invention.

The claims at issue here are somewhat similar to the exchange-settlement process found ineligible in Alice. In particular, Boom’s patents all claim “methods for confirming that a transaction has been consummated prior to releasing electronic payment.”  U.S. Patents 8,429,084; 9,235,857; and 10,346,840. The ‘840 patent issued June 2019 and so the PTO should have gotten this one right.  The examiner initially rejected claims 1 as ineligible (then listed as claim 21).  The patentee made several minor “clarifying amendments” and the examiner then allowed the case.  In its reasons for allowance, the examiner wrote the following:

The claims as amended have been analyzed under 35 U.S.C.101, and although directed at some level to an abstract idea, confirming that a proposed sale transaction has been consummated, the claims as currently amended are found to integrate the abstract idea into a practical application sufficiently that they are patent-eligible under §101.  They do not amount merely to having a computer apply an abstract idea, or using communication between computers to carry out a commercial interaction that could plausibly be done without computers or telecommunication (“could not plausibly be done” does not require that there be no conceivable parallel without computers or telecommunication).

93219_16212317_05-23-2019_NOA.  Claim 1 is pretty long, but it is directed to a computer system “for confirming that a proposed sale transaction has been consummated.”  The system is programmed to do the following:

  • Receive/store a buyer’s payment information;
  • Receive a request from the buyer to purchase an item from an online store;
  • Generate a “transaction-specific buyer acceptance identifier” using human-readable characters
  • Provide the TSBA identifier to the buyer’s computer who apparently provides it to the seller when purchasing.
  • Receive from a seller an identifier of the transaction (as well as the buyer and seller identities);
  • Compare the transaction and identity information;
  • If everything corresponds, then charge an account associated with the buyer.

This is basically a passcode system or checksum.

In its decision, the district court found the claims directed to the abstract idea of authenticating sales through the use of a third-party intermediary, and without any sufficient additional inventive concept.  On appeal, the Federal Circuit affirmed:

Boom argues that the claims are not directed to an abstract idea, but rather to a technological improvement over prior art systems for confirming and processing online payments. Specifically, Boom argues that the elements of the claims provide specific steps for processing an online payment, and therefore are not directed to the general concept of escrow. . . .

We agree with Stripe that the claims are directed to the abstract idea of payment escrow. They only describe steps of passing information back and forth by a computer. The very purpose of the patents, as explained in the written description, is verifying consummation of a transaction before releasing payment by a third party, which is the definition of escrow. . . . Indeed, the claims are reminiscent of those at issue in Alice.

Slip Op.

The patentee also disputed whether the case was properly dismissed at the pleading stage. Although eligibility is a question of law, some aspects of the determination may require a fact-finder to consider evidence (and thus creating a genuine issue of material fact that precludes dismissal on the pleadings). Here, the patentee particularly amended its complaint to allege that the claimed invention was not routine or conventional at the time of the invention. On appeal, the Federal Circuit disregarded those statements as conclusory because they were not supported by particularly “plausible factual allegations.”

Drilling-in on this, the complaint makes the following allegations:

The particularized manner in which the ‘transaction specific buyer acceptance identifier’ and ‘transaction consummation completion identifier’ of the claims of the Asserted Patents are generated, stored, used, and related to other identifiers was not well-understood, routine, or conventional at the time of Mr. Bogaard’s inventions.

The Federal Circuit identifies the assertion here as conclusory and thus gives it no weight in determining whether the complaint generates disputed material facts.  This is a bit odd since we’re asking the patentee to prove a negative, but perhaps the patentee could have cited to the reasons-for-allowance within the complaint itself or submitted an affidavit from an expert on-point as an attachment to the complaint.  At that point though we’re getting pretty far from the “short and plain statement of the claim” required by Fed. R. Civ. Pro. 8.

Conventionality is Irrelevant to Alice Step 1

Patent

by Dennis Crouch

iLife Technologies, Inc. v. Nintendo of America, Inc. (Fed. Cir. 2021) (Non-Precedential Decision)

The Trial: The jury sided with iLife–finding Nintendo liable for infringing iLife’s U.S. Patent No. 6,864,796 and awarding $10 million in damages. At trial, Nintendo had argued that the patent was invalid for lack of enablement and written description, but the jury denied those defenses. Nintendo also challenged the patent in an IPR, but the claims not proven invalid.

Here, the claims are directed a safety-feature for systems that evaluate body-movement, such as Nintendo’s Wii Sports and Mario Kart 8.  The basic idea is that the system will sense acceleration of a body and determine whether the associated movement is “is within environmental tolerance.”  A “tolerance indicia” is then created and transmitted.  The patent notes that movements beyond tolerance might “be damaging, destructive, crippling, harmful, injurious, or otherwise alarming or, possibly, distressing to the body.”

Eligibility: Pre-trial, Nintendo had also argued that the asserted claims were invalid as directed to the abstract idea of gathering and processing data.  The district court refused to decide that issue pre-trial.  However, after the trial, the court stepped-up and found the claims invalid.  That decision eliminated the damages award.  On appeal here, the Federal Circuit has affirmed.

[ILife’s] claim 1 of the ’796 patent is not focused on a specific means or method to improve motion sensor systems, nor is it directed to a specific physical configuration of sensors. It merely recites a motion sensor system that evaluates movement of a body using static and dynamic acceleration information.

Slip. Op.

The patent itself includes more specific hardware and logical elements.  Consider, for instance Figures 1 and 5 below.  However, the asserted claims here were directed to a much broader abstraction.

As the district court held, the elements of claim 1, considered individually and as an ordered combination, fail to recite an inventive concept. Aside from the abstract idea, the claim recites only generic computer components, including a sensor, a processor, and a communication device. The specification’s description of
these elements confirms they are generic.

Id.

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Separating Out the Steps: The one quirk of this decision comes from the following statement: “The conventionality of the claim elements is only considered at step two” of the Alice/Mayo analysis.  In finding the claims directed to an abstract idea, the district court had noted that claim 1 does not require “anything other than conventional sensors and processors performing conventional activities previously known to the industry.”  It was error to consider conventionality at that stage of the analysis.  Despite that error, the appellate panel still found the claim directed toward an abstract idea.  Note that this is a non-precedential decision and so this line from the case won’t help yours.

= = = =

1. A system within a communications device capable of evaluating movement of a body relative to an environment, said system comprising:

a sensor, associable with said body, that senses dynamic and static accelerative phenomena of said body, and

a processor, associated with said sensor, that processes said sensed dynamic and static accelerative phenomena as a function of at least one accelerative event characteristic to thereby determine whether said evaluated body movement is within environmental tolerance

wherein said processor generates tolerance indicia in response to said determination; and

wherein said communication device transmits said tolerance indicia.

= = = = =

Michael Wilson (Munck Wilson Mandala) represented the patentee at trial and on appeal; Stephen Smith (Cooley) for the successful defendant.

Free Speech Tuesday: Regulating Internet “Tyranny”

Patent

by Dennis Crouch

July 4, 1776, the “united States of America” met and declared independence from Britain and its King who had worked to establish “an absolute Tyranny” over the thirteen colonies.  Ever since, in the American mindset, tyranny demands revolution. “[W]henever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government.”

My Missouri Sen. Josh Hawley grabs hold of this rhetoric in his new book – Tyranny of Big Tech.  Although Hawley’s publishing contract has been publicly cancelled, I’m sure he’ll find a way to publish it — even if it means he receives less money.  Hawley is way-off the mark.  As a person-in-power, he should have taken care to avoid revolutionary rhetoric for what is really a regulatory issue.  He unfortunately raised tensions, raised them again, and then again.

BUT, the power of big tech is real. This week, Trump’s soap-box (twitter account) was been removed; Stripe stopped processing his donations; Parler was removed from major app stores (Google + Apple) and its web host denied (Amazon AWS) until the company complies with moderation policies. Parler says it won’t comply.  You could imagine the owners of the internet backbone (Tier-1 ISPs) and as direct-to-customer-providers blocking communications from these services as well.  This is the most public flexing of US internet might, but lower-key actions have been going on for years — especially toward traditional vices such as sex-workers, pornography, gambling, and marijuana sales.  You could imagine next-level ramping up of tensions with pro-Trump shipping companies refusing to deliver for these companies.  Ahh, but the legality of all of this may depend upon regulatory controls on speech and on common carriers.

Hawley has been calling these recent actions a violation of free speech rights.  That is obviously wrong when it comes to First Amendment protections. The First Amendment does not require private companies publish Donald Trump’s speech or provide internet service Parler.  That said, for years liberals have been calling for network neutrality regulations that would go a long way toward this end.

Free speech law does not begin-and-end with the U.S. Constitution.  Rather, our internet has been structured as a reaction to common law principles later adapted by Congress.  Those rules and regulations can change, and likely will change over the next four years.

For now though, I’m just looking for our democracy to survive the next 9 days. Good luck everyone!

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Next Steps in Eligibility.

Patent

Two competing patent eligibility petitions have been filed with the Supreme Court.  In American Axle, the patentee argues that the Federal Circuit has gone too-far in finding its claimed method of manufacturing a frequency-tuned vehicle drive-shaft to be directed to a natural law (namely Hooke’s law).  In Ariosa Diagnostics, the petition goes the other way and argues that the Federal Circuit has unduly narrowed its conception of a product-of-nature under Myriad.  It would be interesting for the Supreme Court to take these cases as a pair in order to reconcile the law and explain the extent that product-of-nature analysis fits within the Mayo framework.

 

Sequenom Back Again: This time Patent Eligible

Federal Circuit Narrows Application of Hooke’s Law, but Still Wields the Ineligibility Hammer

Hey Mechanical Engineers: Your Patents are Also Ineligible

 

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Supreme Court will hear Assignor Estoppel Case

Patent

Minerva Surgical Inc. v. Hologic Inc. (Supreme Court 2021)

The Supreme Court has granted certiorari in this case involving the traditional doctrine of assignor estoppel.

Question Presented by Minerva: The question is whether a defendant in a patent infringement action who assigned the patent, or is in privity with an assignor of the patent, may have a defense of invalidity heard on the merits.

Question Presented by Hologic: The question presented is whether the longstanding common-law doctrine of assignor estoppel should be abrogated by this Court.

Petition for Writ of Certiorari – Opposition to Certiorari – Reply Brief;
Amicus by IP Professors (Lemley) – Engine Advocacy.

= = = = =

The appellate panel in the case upheld the doctrine of assignor estoppel, but also found that an assignor could collaterally attack via IPR since the PTO does not enforce the doctrine.  The panel – led by Judge Stoll — also called for reconsideration of the doctrine “as it applies both in district court and in the Patent Office.”

= = = = =

There are several related doctrines here: Estoppel by Deed, Assignor Estoppel; Licensee Estoppel. Licensee estoppel in the patent context was ended by Lear v. Adkins, 395 U.S. 653 (1969).  Prior to the Federal Circuit, some courts expanded Lear to also eliminate Assignor Estoppel.  See., e.g., Coastal Dynamics Corp. v. Symbolic
Displays, Inc., 469 F.2d 79 (9th Cir. 1972) (per curiam).  However, the Federal Circuit did not agree and has applied assignor estoppel over the decades to bar validity challenges by inventors and prior owners who are later sued for infringement.  While licensee estoppel is contract focused, its property law parallel is estoppel by deed which bars a prior-owner from “denying the truth of the deed.” Estoppel by deed servers as the doctrinal foundation for assignor estoppel in patent law.  Assignor estoppel is seemingly strengthened because the patent applicant publicly assures the USPTO of the patent’s validity by claiming patent rights.

In the end though, I believe that assignor estoppel only creates a strong presumption.  I expect that no estoppel would apply in cases where the seller expressly reserves the right to later challenge the patent. Of course, most employee-inventors will not have the negotiation power or awareness to demand such a provision.

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Moot on Appeal: Patentee’s Infringement Disclaimer Remove’s Challenger’s Ability to Appeal IPR

Patent

ABS Global, Inc. v. Cytonome/ST, LLC (Fed. Cir. 2021).

In a split opinion, the Federal Circuit has dismissed ABS Global’s appeal of its failed IPR trial — finding the appeal moot. U.S. Patent No. 8,529,161.

The simple story here is that Cytonome sued ABS for infringement of the ‘161 patent but lost on summary judgment of non-infringement.  ABS Cytonome did not pursue an appeal, and expressly “disclaim[ed] such an appeal.”

Meanwhile ABS had filed an Inter Partes Review proceeding that resulted in most of the claims being cancelled.  The PTAB did side with the patentee on two of the claims — finding that they had not been proven obvious.  ABS wanted all of the claims invalidated and so appealed to the Federal Circuit.

Appellant must have Standing to Appeal: Although the Patent Act provides a right to appeal to all parties of an IPR, the Federal Circuit also requires standing — a “concrete” and “particularized” harm associated with the patent’s existence — an actual case or controversy.  This is akin to ordinary declaratory judgment jurisdiction, but a bit lighter because of participation in the PTAB trial and the express statutory right.  Mootness is also wrapped-up in the standing discussion.  A court has no jurisdiction over a moot controversy.

When ABS appealed its IPR (partial) loss, the patentee (Cytonome) responded with an argument that the case was moot because Cytonome lost its infringement lawsuit already and expressly abandoned any right to appeal.  Going forward, claim & issue preclusion would prohibit Cytonome can sue ABS for infringement of the ‘161 patent (at least for the same infringement that ABS was already doing).

ABS argued that the case is not truly moot because Cytonome might sue ABS for a modified version of its product.  The viability of those claims creates a cloud for the company.   On appeal, the Federal Circuit asked whether ABS had any plans — concrete plans — in connection with products that might infringe the patent.  ABS had none and so the court concluded that the case has become moot.

Cytonome’s disavowal therefore estops Cytonome from asserting liability against ABS for infringement of the ’161 patent claims in connection with the accused products, thereby allowing ABS to make, use, and sell those products freely. [Under the Kessler doctrine]. Cytonome’s disavowal would also bar a future suit for infringement of the ’161 patent claims covering ABS products that are “essentially the same” as ABS’s currently accused products. [Under Brain Life’s extension of Kessler]. . .

ABS acknowledged during oral argument that there was no evidence in the record that ABS engaged in or had concrete plans to engage in activities not covered by Cytonome’s disavowal. . . . Here, the evidence in the record fails to establish that ABS had a “particularized, concrete stake in the outcome” of its IPR appeal.

Dismissed as Moot.

The dissent by Chief Judge Prost does not dispute the mootness, but argues that the court should have taken the second step of vacatur:

Time and again the Supreme Court has explained that vacatur is in order when the prevailing party below unilaterally moots an appeal. The Majority today departs from that established practice, concluding that dismissal is the proper course here. It is not.

In particular, the dissent would have vacated (essentially marked-out) the challenged portion of the Board’s decision.  That would seemingly eliminate the potential estoppel effect of IPR determinations.

UPDATED: Must a Plaintiff Investigate a Patent’s Validity Prior to Suing for Infringement?

Patent

Updated below to correct an error in my original analysis. -DC

WPEM LLC v. SOTI Inc. (Fed. Cir. 2021)

WPEM sued SOTI for patent infringement based upon its mobile-device software management “Speed Lockdown” tool. The complaint cites MobiControl Version 11 as infringing.  In its answer, SOTI responded with information from its Version 10, which predates the asserted patent as well as other prior art references.  Settlement discussions ensued:

  • Offer 1: P offers to settle for $429k; D says “no, the patent is invalid.”
  • Offer 2: P offers to settle for $150k; D says “no, the patent is invalid” and also sent P a R.11 notification (alleging that the complaint was filed without sufficient investigation and thus in violation of R. 11).
  • Offer 3: P offers to settle for $75k; D says “no, the patent is invalid.”
  • Offer 4: P offers to dismiss the case with prejudice and grant a license if D agrees to dismiss its counterclaims and abandon its request for attorney fees; D says “no.”

P (WPEM) subsequently asked that its case be dismissed with prejudice.  The district court dismissed the case, but also found it exceptional under 35 U.S.C. 285 and awarded attorney fees of  $180k. The primary basis of the district court’s award was WPEM’s failure to conduct sufficient pre-filing investigation and also continuing the case after learning of its frivolous case.  The court wrote:

WPEM conducted no pre-filing investigation into the validity and enforceability of the Asserted Patent.

WPEM, LLC v. SOTI Inc., 2020 WL 555545 (E.D. Tex. Feb. 4, 2020).

UPDATE – I read through the district court case again and found that I had erred in my statement above (now with strikethrough).  Rather, the district court particularly concluded that it “finds nothing exceptional about WPEM’s post-filing conduct.”  The district court considered the progressive settlement offers, but did not find them improper in any way. Id.  

On appeal, the Federal Circuit affirmed — giving deference to the district court’s judgment on exceptional case awards and finding no abuse of discretion. WPEM, LLC v. SOTI Inc., 2020-1483, 2020 WL 7238458, at *1 (Fed. Cir. Dec. 9, 2020)

WPEM’s argument on appeal was that a patentee need not conduct any investigation regarding the validity of its patents prior to filing a lawsuit because a patent is presumed valid and enforceable.  Any invalidity defense is for the defendant.  On appeal, the Federal Circuit did not disagree, but appears to have twisted the district court opinion somewhat.

Contrary to WPEM’s assertion, we do not read the district court’s opinion as failing to account for the presumptions of validity and enforceability. Instead, the court based its award of attorneys’ fees, in part, on the frivolous nature of WPEM’s infringement position (i.e., the substantive strength of WPEM’s litigation position)—an issue that could have easily been foreseen with an adequate pre-suit investigation (i.e., the unreasonable manner in which the case was litigated). As the court reasoned, because the Accused Technology is prior art to the ’762 patent, “if WPEM prevailed on its assertion that the Accused Technology is covered by the Asserted Patent, it would have had the effect of invalidating, rather than infringing, the Asserted Patent.” Because it is undisputed that the Accused Technology is prior art to the ’762 patent, see id., WPEM could not bring a successful infringement suit.

Id. The appellate decision makes logical sense but for the recognition that infringement analysis is a separate and distinct doctrine from anticipation and that the complaint (apparently) does a reasonable job of showing how the accused product actually practices the invention.

The patentee has now petitioned for en banc rehearing with the following two questions:

  1. When a plaintiff is not aware of any reason to question the validity of an issued United States Patent, is that plaintiff allowed to rely on the statutory presumption of validity when filing a patent infringement lawsuit?
  2. While invalidating the claims of a validly issued United States Patent requires clear and convincing evidence, is a District Court allowed to base a finding of exceptionality under §285 for an inadequate pre-suit investigation of patent validity using the lesser standard that the patent is likely invalid when the plaintiff is not aware of any reason to question validity?

[WPEM Petition for Rehearing].

= = =

Fees on Fees: The defendant had asked for $267k in attorney fees, but the district court only knocked-off about $87k of that — but awarding $180k. That $90k portion was the amount SOTI’s attorneys racked-up in drafting and arguing its motion for fees. The district court refused to award fees-on-fees in this case.

The Court understands that, in pursuing a § 285 recovery, parties will inevitably incur additional attorneys’ fees. However, in this case a near doubling of the amount already incurred in fees is simply unreasonable. At some point, a party must be mindful of the use and conservation of judicial and party resources and cannot (after it realizes it will prevail) continue to incur fees far in excess of any proportional relationship to the fees incurred in the merits portion of the case.

WPEM, LLC v. SOTI Inc., 2020 U.S.P.Q.2d 38024 (E.D. Tex. 2020).

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Bill Ramey is representing the patentee in the appeal; Robert Greeson for the defense.  SOTI has not yet responded to the petition.

Easing into 2021 with PTAB Affirmance

Patent

Comcast Cable Communications v. Promptu Systems Corporation (Fed. Cir. 2021)

The Federal Circuit’s first decision of 2021 comes as a boring 5-page non-precedential opinion upholding a PTAB Final Written Decision that Promptu’s claims had not been proven invalid.  Love it! 💓💓🌼🌼🌼. 

Promptu’s U.S. Patent No. 7,260,538 claims voice-recognition processing using a cable-TV remote-control but processed server-side (cable head-end unit).  The chart below shows the communications pathway from the Remote Control via the Set-Top Box then to the Cable Company’s Head-End Unit where the speech processing actually occurs.

The cited prior art was quite similar in that it allowed speech processing via the remote.  However, the key difference appears to be the content of the messages. In particular, the invention here focused on receiving “command functions” that control the set-top box while the prior art involved accessing information over the network and causing actions at the server.  That difference was sufficient to win the day for the patentee.

Comcast raises a panoply of arguments challenging the Board’s final-written decisions. Primarily, it claims the Board erred by rejecting its construction of “command function” as overly broad and by finding no motivation to combine Houser with the primary references. We do not agree.

Slip Op.

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In a separate opinion, the Federal Circuit vacated-in-part another Comcast vs Promptu case — this one involving Promptu’s U.S. Patent No. 7,047,196. [Decision]  The court found that the PTAB had too-narrowly construed the claim term “received back channel.”

Federal Circuit Statistics – 2020 edition

Patent

By Jason Rantanen

This post uses data from the Compendium of Federal Circuit Decisions to provide a quick statistical overview of the Federal Circuit’s decisions this year, particularly in appeals arising from the district courts and USPTO.

Decisions by origin

Figure 1 shows the total number of Federal Circuit opinions and Rule 36 summary affirmances by origin.  The increase in decisions in appeals from the USPTO (orange) over the past decade is clearly visible, although last year there was a slight decline.  Decisions in appeals arising from the USPTO dropped about 17% (254 in 2019 versus 2010 in 2020), while decisions in appeals arising from the district courts increased slightly (182 in 2019 versus 199 in 2020).  Overall, the Federal Circuit’s docket is a lot more patent-heavy today than it was in 2010.  The court is issuing more decisions as well.

Figure 1

Decline in Rule 36 Summary Affirmances

Figures 2 and 3 show the number of written opinions and Rule 36 summary affirmances in appeals arising from the district courts and USPTO.  Both figures show a decrease in the number of Rule 36 summary affirmances and increase in written opinions in 2020.  This change is especially dramatic in decisions arising from the USPTO.

Figure 2

Figure 3

In addition, as figures 4 and 5 show, the increase in written opinions has primarily come in the form of more nonprecedential opinions.  The number of nonprecedential written opinions in appeals from both the district courts and USPTO have increased while the number of precedential decisions has remained about the same or declined.

Figure 4

Figure 5

Despite the decrease in Rule 36 summary affirmances, the court’s overall affirmance rate measured by decision (i.: the outcome of a given opinion or Rule 36 affirmance) remained about the same in 2020.  As Figure 6 shows, over the last ten years the Federal Circuit fully affirmed about 70% of its decisions arising from the district courts and affirmed at least in part about 80% of the time.  Similarly, as Figure 7 shows, the court has full affirmed the USPTO around 80% of the time and affirmed at least in part about 90%.  This data is inconsistent with the hypothesis that the Federal Circuit is issuing fewer Rule 36 summary affirmances because it is reversing less often.

Figure 6

Figure 7

My takeaway is that the Federal Circuit judges are writing more nonprecedential opinions instead of issuing Rule 36 summary affirmances.  Hopefully this will provide some additional information for parties on the court’s reasoning when it affirms.

As always, the data for this post (and much more data) is available via the Compendium of Federal Circuit Decisions website.  In calculating the affirmance rate I did not include decisions coded as “dismissed” or “other.”  Thanks to my research assistants for their work coding Federal Circuit decisions, particularly Lindsay Kriz who did the lions share of the coding for 2020 decisions.

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