by Dennis Crouch
In AlexSam v. Aetna, the Federal Circuit recently revived the patentee’s infringement lawsuit against health insurance giant Aetna over its Visa and Mastercard-branded health savings account (HSA) debit cards. AlexSam, Inc. v. Aetna, Inc., No. 22-2036 (Fed. Cir. Oct. 8, 2024). The district court has dismissed the case on 12(b)(6) for failure to state a claim of infringement. The case will likely be highly cited by future infringement plaintiffs seeking to overcome motions to dismiss, especially whether allegations in the complaint are unduly conclusory. The appellate panel also narrowly construed a prior license agreement between AlexSam and Mastercard
AlexSam’s asserted U.S. Patent No. 6,000,608 covers a “multifunction card system” that can serve as both a debit card and a medical services card. I have reproduced the two asserted claims below. And no, this is not an eligibility case.
Claim 32: A multifunction card system comprising:
a. at least one debit/medical services card having a unique identification number encoded on it comprising a bank identification number approved by the American Banking Association for use in a banking network;
b. a transaction processor receiving card data from an unmodified existing standard point-of-sale device, said card data including a unique identification number;
c. a processing hub receiving directly or indirectly said card data from said transaction processor; and
d. said processing hub accessing a first database when the card functions as a debit card and said processing hub accessing a second database when the card functions as a medical card.
Claim 33: The multifunction card system of claim 32, wherein the unique identification number further comprises a medical identification number.
The district court had dismissed AlexSam’s complaint for failure to state a claim under Rule 12(b)(6), finding the allegations of direct and indirect infringement insufficient and concluding that Aetna’s Mastercard-branded products were licensed under a 2005 agreement between AlexSam and Mastercard.
Writing for a unanimous panel, Judge Leonard Stark first addressed the appropriate standard of review for a district court’s categorization of complaint allegations as conclusory or well-pleaded. The Federal Circuit had not previously articulated the standard, so Judge Stark took the opportunity to hold that such determinations are reviewed de novo on appeal. The court reasoned that “the overall endeavor of evaluating a motion to dismiss, both in a trial court and on appeal, is a matter of law, not requiring any factual determinations or exercises of discretion.” This aligns with the de novo review already applied to overall rulings on motions to dismiss.
Turning to the substance of AlexSam’s complaint, the Federal Circuit found that the district court erred in dismissing the allegations against Aetna relating to the Visa-branded cards. The panel concluded that AlexSam had adequately pled direct infringement by alleging that Aetna “uses” and “makes” the claimed multifunction card system. The complaint included “factual allegations that, when taken as true, articulate why it is plausible that the accused product infringes the patent claim.”
Specifically, the court noted that AlexSam had alleged Aetna “owns, operates, or leases all equipment in the infringing system, or alternatively exercises direction and control over the operation of all equipment in the infringing system in order to provide the benefit of debit/medical services cards to its customers.” The complaint also alleged that Aetna “employs staff (e.g., an IT department) to operate the Processing Hub in order to interface with, install, configure, manage, monitor, test, and control the debit/medical services cards and other equipment in the infringing multifunction card system.” The Federal Circuit found these allegations sufficient at the pleading stage to support claims that Aetna both “uses” and “makes” the claimed system.
On the issue of indirect infringement, the panel again disagreed with the district court’s analysis. The Federal Circuit concluded that AlexSam had adequately alleged the elements of both induced and contributory infringement. For inducement, the complaint alleged that Aetna had knowledge of the ‘608 patent based on notice letters sent in 2015, and that Aetna nonetheless “continue[d] to encourage, instruct, enable, and otherwise cause its customers to sell” the accused products. Slip op. at 35. The court found these allegations sufficient to plead the knowledge and specific intent required for inducement under 35 U.S.C. § 271(b).
On contributory infringement, the Federal Circuit determined that AlexSam had adequately alleged that Aetna’s “Processing Hub” – a key component of the accused system – has no substantial non-infringing uses. The complaint alleged the Processing Hub was “especially adapted for use in the infringing systems” and “has no substantial non-infringing uses.” While Aetna argued this was merely a conclusory recitation of the statutory language, the Federal Circuit found it sufficient when considered alongside the other factual allegations in the complaint.
Interpreting the Prior License: In my view, the most significant aspect of the decision relates to the interpretation of the 2005 license agreement between AlexSam and Mastercard. The district court had concluded that this agreement provided a complete defense to infringement for Aetna’s Mastercard-branded products. The Federal Circuit disagreed, finding that the district court had construed the license too broadly.
The license agreement defined “Licensed Transactions” as “each process of activating or adding value to an account or subaccount which is associated with a transaction that utilizes MasterCard’s network or brands.” The Federal Circuit emphasized that this language created “a threshold requirement that a licensed ‘chain’ of transactions must include an activation or adding value component.” Claims 32 and 33 of the ‘608 patent, however, do not expressly require activation or value-adding transactions. Therefore, the court concluded, “not every act that infringes these claims will necessarily be licensed. . . . specifically the transactions of the Accused Products in which there is no activation or adding of value.”
The Federal Circuit also found that the district court had improperly resolved factual disputes in Aetna’s favor at the pleading stage. For example, the complaint alleged that Aetna’s accused products “are medical cards and do not require an activation transaction.” The court held this allegation should have been accepted as true for purposes of the motion to dismiss – the district court had actually concluded it was false.
Because this was at the motion to dismiss stage, there are a number of issues still up for pre-trial litigation on remand. These include whether the license agreement terminated before the expiration of the ‘608 patent, and the impact, if any, of a 2007 amendment to the agreement. The court noted that Mastercard itself has argued in separate litigation that the agreement terminated early.
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For Plaintiff-Appellant AlexSam, Inc.: Steven Ritcheson of Insight PLC argued the case and was joined on the brief by Jacqueline Burt, Timothy Davis, and W. Lee Gresham III of Heninger Garrison Davis, LLC.
For Defendant-Appellee Aetna, Inc.: Thomas Rohback of Axinn Veltrop argued the case and was joined on the brief by Matthew Murphy of the same firm.