The case law since the Supreme Court’s infamous Alice Corp. Pty. Ltd. v. CLS Bank International, 573 U.S. 208 (2014) decisions has been erratic as courts attempt to “mold” their decisions within the “Alice” framework. The puzzle of §101 eligibility is greatly complicated by the fact that many of today’s innovations involve subject matter that cannot be seen or touched. Should this “invisibility” make an invention abstract under the judicially created exception to patent eligibility if the underlying subject matter actually results in a concrete result?
Unfortunately, the answer is still up-in-the air as demonstrated by two 2019 decisions by the Federal Circuit involving similar subject matter but resulting in different outcomes. In Solutran, Inc. v. Elavon, Inc., the court held that various claims related to “a system and method for processing paper checks” are invalid under §101. (Fed. Cir. July 30, 2019). In November 2019 the same court held that check-error processing patent claims are not invalid under §101 because the claims are a “non-abstract improvement in an existing technological process for handling check data.” Koninklijke KPN N.V. v. Gemalto M2M GmbH et al.
This blog contrasts the two decisions to determine if they provide any relevant insight as to what may or may not withstand a §101 analysis.
The Solutran, Inc. v. Elavon Decision
Solutran, Inc., as the assignee of U.S. Patent No. 8,311,945, sued U.S. Bancorp and affiliate Elavon in the U.S. District Court for the District of Minnesota alleging infringement of certain claims of the ‘945 patent in Sept. 2013. In Feb. 2014, U.S. Bancorp petitioned for a Covered Business Model review of the ‘945 patent before the Patent Trial and Appeal Board (PTAB) arguing the patent was invalid under §101. The patent was generally related to a “system and method of electronically processing checks in which (1) data (routing number, account number, and check number) from the check is captured at the point of purchase, (2) this data is used to promptly process a deposit to the merchant’s [payee’s] account,” (3) the paper checks are moved elsewhere “for scanning and image capture,” and (4) the image of the check is matched up to the data file.” The PTAB held that the ‘945 patent was valid.
Prior to the invention, the method for processing check involved the payee’s bank receiving the check for processing before transferring the check to the payor’s bank for finalizing the transfer. The invention sped up the transfer of the payor’s funds to the payee’s account. U.S. Bancorp asserted that the claims did not recite patent-eligible subject matter under §101 because they were directed to the “abstract idea of delaying and outsourcing the scanning of paper. Relying on the PTAB’s 2014 decision in favor of the patentee/assignee, the district court concluded that “the basic, core concept of independent claim 1 is a method of processing paper checks, which is more akin to a physical process than an abstract idea.” As such, under the first prong of the Alice analysis, the claimed process was not an abstract idea because the process improved upon techniques for processing “physical checks.” Even it was an abstract idea, the process would still qualify for patent protection under prong 2 of the Alice analysis because the claims “describe a new combination of steps, in an ordered sequence, that was never found before in the prior art and found by the examiner and the PTAB to be non-obvious over the prior art.” U.S. Bancorp then appealed the district court’s decision to the CAFC where Solutran’s luck ran out.
Solutran argued that the patent articulated two benefits: “(1) ‘improved funds availability’ because the merchant’s account is credited before the check is scanned or verified; and (2) relieving merchants of the task, cost, and risk of scanning and destroying paper checks by outsourcing these tasks.” Here the CAFC concluded that the claims did not improve upon the technical nature of computing elements completing the processes. The court further emphasized that the claims were written at a “high level of generality,” and the patent’s specification itself conceded that the steps “are conventional processes for processing checks electronically.”
Solutran also adopted the district court’s favorable view of the “physicality” of the claims, arguing that, since they relate to the processing of paper checks, the claims are not based on an abstract idea. The CAFC declined to adopt this interpretation by emphasizing the fact that “’the abstract idea exception does not turn solely on whether the claimed invention comprises physical versus mental steps. Nor does the physical processing of checks “improve any underlying technology.”
As for the second prong of the Alice test, the CAFC held that the claims, “ ‘do not, for example, purport to improve the functioning of the computer itself or effect an improvement in any other technology or technical field,’ and thus do not recite a transformative, inventive concept.” The Court discounted the district court’s assertion that novelty or non-obviousness obviates patent eligibility under §101. “[W]e have previously explained that merely reciting an abstract data by itself in a claim – even if the idea is novel and non-obvious – is not enough to save it from ineligibility.” The Solutran Court also opined that the “945 patent does not pass the machine-or transformation test argument because the method uses generic computers to perform conventional activities.” In other words, the ‘945 patent did not reveal anything new under the sun in the CAFC’s mind.
The Koninklijke KPN N.V. v. Gemalto M2M GmbH et al. Decision
In 2018, the U.S. District Court for the District of Delaware invalidated a patent as ineligible subject matter under §101, but its decision was reversed by the CAFC in Nov. 2019. Koninklijke KPN N.V. v. Gemalto M2M GmbH et al. The decision is instructive because, compared to the Solutran court, the KPN court delivers a decision that actually makes sense within the constraints of the Alice decision.
KPN’s patent no. 6,212,662 was issued in 2001 or long before the Alice decision and is directed to improving check data methods and reducing errors by varying the function that generates check data during the electronic scanning process. Interestingly, the patent’s specification stated that “[a] method and devices of the above-mentioned kind are known in the prior art.” The specification clearly explains the state of the prior art at the time KPN’s application and how the disclosed invention overcomes the prior art’s electronic data transmission errors.
Electronic data transmission has become a ubiquitous part of everyday life yet few people understand how it works. Unless data transmission results in accurate outcomes, electronic data transmission would be pretty useless. Clearly, any time data is sent electronically, there is a possibility that some of the data gets garbled resulting in transmission errors. Methods using check data were used to detect random errors in the transmitted data but were not good at detecting non-random systemic errors at the time of the KPN invention. KPN’s patent disclosed the improvement of the then-existing check data method that succeeded in detecting systemic errors.
How do check data relate to computers? Computers represent a block of data as a binary number, represented by a long sequence or string of 1s and 0s that stand for texts, photos, payments, and other data we routinely send daily. Check data are carve-outs of the longer sequence of 1s and 0s that are computed from the longer block of data.
Whenever an electronic device sends a block of data associated with a specific transmission, it also transmits check data for that block of data. When the receiving device receives the data, the receiving data recomputes the check data to confirm accurate transmission. If the receiving device gets a different answer than the sending device’s sent check data, there will be an error in the data transmission.
This “cross-checking” method is good at detecting most random errors. For non-random errors, however, a particular change occurring within the binary number does not cause a corresponding chance in the check data computed on it. Here, when the receiving computer computes its own check point data, it will still get the answer it was told to expect, and the error will not be detected. If the errors are random, the non-detection of errors will occur infrequently. If, however, the undetected error is a non-random repeating, systemic error, the check data methods will miss it every time.
KPN’s patent introduces additional check points to detect non-random errors. Claim 1 is for a generating and varying device. The varying device introduces permutations into the data block by altering the order of 1s and 0s before computing the check data. This step is accomplished without reordering any blocks of original data. Claim 2 explains that the varying device is configured to modify to modify the permutation based on the original data. Claim 3 provides for a table in which subsequent permutations are stored. By changing the check data function according to the claims, a systemic error during electronic data transmission has far less of a chance to go undetected.
In finding for the patent owner, the CAFC read the claims as a non-abstract improvement in transmission error checking because the claims were directed to a “non-abstract” improvement over the prior art because they “employ a new way of generating check data that enables the detection of persistent systematic errors in data transmissions that prior art systems were not previously equipped to detect.” That is, the claims represented a concrete improvement of the data transmission process between electronic devices resulting in a tangible, concrete, and technical result.
The KPN decision is encouraging because it establishes that inventions requiring a generic computer for enablement, a non-generalized utility may survive an Alice analysis. The decision also establishes that a specification may just end up saving the day if it articulates the benefits of the invention and how the invention has a clear improvement over the prior art. Indeed, when writing patent applications, the focus is often on claims writing because the claims largely define the scope of the invention. However, the KPN decision is a reminder that the specification can play an important role in overcoming a finding that a software-based invention is abstract and/or lacks an inventive concept under Alice.
For example, the KPN defendant argued that the “specification does not mention any technological benefit of using permutations to generate check data.” The CAFC disagreed by finding a technological benefit associated with the disclosed “permutation” method within the specification through the improvement of the “ability of the prior art error detection systems to detect systematic errors.” Although the ‘662 patent was granted long before the Alice decision, it withstood the serious ramifications of Alice and its progeny because of a well-written specification which the CAFC deliberately relied on to find a direct technological benefit over the art which was not abstract to start with. This is so even though the invention did not improve the functioning of a generic computer which the Solutran court stated was one of the reasons it was reversing the district court’s and the PTAB’s decisions upholding the ‘945 patent.
Discussion
A comparison of the two independent claims from the ‘662 and ‘945 patents provided below does establish that the invalidated ‘945 patent’s claim is very generalized. The ‘662 claim on the other hand is directed to data manipulation to produce something substantially “different” from the inputted data. For the KPN court, such an alteration was deemed an improvement in a technical field having a tangible benefit distinguishable from the mere transmission of electronic data. It is clear from the opinion that the KPN court took considerable time to find support within the specification for its favorable decision. Here, the court seemed to intuitively realize that the invention’s behind the scenes permutations resulted in a useful utility. Because the invention was found to be non-abstract, the court did not address prong 2 of the Alice test.
The Solutran Court, on the other hand opined that the “faster” deposit of a check into a merchant’s account was both abstract and non-inventive, i.e., the claims failed both prong 1 and prong 2 of the Alice test. Furthermore, the check processing method was found to not even be representative of a technical field. Nor did the CAFC even agree with the district court’s assertion that novelty or non-obviousness obviates patent eligibility under §101. Put another way, the Court refused to acknowledge that the method had a tangible, transformative effect on check processing resulting in the quicker deposit of the payor’s funds in the payee’s bank accounts. Tell that to any merchant who benefited from the invention: a quicker deposit of funds for services performed/goods sold is meaningless according to present patent law.
‘662 KPN Patent Claim 1
A device for producing error checking based on original data provided in blocks with each block having a plural bits in a particular ordered sequence, comprising: a generating device configured to generate check data; and a varying device configured to vary original data prior to supplying said original data to the generating device as varied data; wherein said varying device includes a permutating device configured to perform a permutation bit position relative to said particular ordered sequence for at least some of the bits in each of said blocks making up said original data without reordering any blocks of original data.
‘945 Solutran Patent Claim 1
A method for processing paper checks comprising: a) electronically receiving a data file containing data captured at a merchant’s point of purchase, said data including an amount of a transaction associated with MICR information for each paper check, and said data file not including images of said checks; b) after step a) crediting an account for the merchant; c) after step b), receiving said paper checks and scanning said checks with a digital image scanner thereby creating digital images of said checks and, for each check, associating said check’s MICR information; and d) comparing by a computer said digital images with said data in the data file to find matches.
The commentator asserts that the routine usage of the word “abstract” in patent law is a misnomer akin to the “idea” concept of copyright law. The Solutran Court’s own attempt to clarify how it interpreted “abstract” just adds to the confusion: “[t]he abstract idea exception does not turn solely on whether the claimed invention comprises physical versus mental steps.” If this is the CAFC’s position, then what exactly does the abstract idea turn on?
Moreover, electronic transmissions and data processing can readily be described as actual technical fields in today’s computer-connected world. But for these two technical fields, lawyers would still be doing legal research manually, writing legal documents by hand, and going to the bank to deposit checks in person. Innovations resulting from new technologies have resulted in the creation of these technical fields. Article VIII of the Constitution is still applicable in today’s electronically driven world. The problem is that courts have opined that patents involving “sight unseen functionality” to deliver a useful utility just don’t seem worthy of patent protection.
The fact is that all inventions start from a mental concept/idea that is transformed into a machine, apparatus, or process. Today processes may well encompass electronic, software driven directions. Without an actual transformative step to provide a concrete result, the enablement requirement of any and all patent application will be missing. Nor has any patented invention ever needed to disclose an invention representing the greatest thing since sliced bread. Incremental improvements are patentable. The Solutran patent represented an incremental improvement in electronic check processing from a merchant’s perspective that was not met by the prior art. Indeed, both the PTAB and the district court concluded that the Solatran invention was not only both novel and non-obvious but that it also met prong 2 of the Alice test. By the time the CAFC got around to evaluating the Solutran patent, considerable case law invalidating patents right and left under §101 had been generated. Perhaps because of those decisions, many of which have been deemed problematic by the patent bar and inventors, the CAFC felt compelled to invalidate the Solutran patent so as be consistent with its previous questionable decisions.
Take Home Points
1. Don’t Ignore the Importance of the Specification. The KPN decision is helpful because it demonstrates the importance of the specification in explaining the benefits of the electronic transmission invention. The KPN Court intuitively grasped the technological importance of the invention in reducing electronically transmission errors and relied on the specification to support its intuition. Even though the specification did not specifically refer to any technological benefit, the court did find these benefits by tying together passages columns apart.
Solutran may have had a stronger argument if the specification better emphasized invention’s benefits, e.g., a substantial reduction in the time required for a merchant to receive its payment because the actual electronic receipt of a scanned check by the merchant’s bank was not a prerequisite for account crediting. The commentator does not know if Solutran’s method reduced depositing errors, but if yes, this benefit should also have been mentioned. Furthermore, the invention was not a mere automation of an abstract thought process but involved steps to overcome what had always been a required a step in depositing checks – waiting for the merchant’s bank to post the check to the merchant’s account which was dependent upon the payor’s own bank or credit union to process the check and transfer funds to the merchant’s account. The invention also provided a final cross-check to ensure accuracy of the faster deposit. Even so, it is likely that this patent was ripe for invalidation in today’s post Alice world even though it met the test for novelty and non-obviousness according to the PTAB, the examining attorney, and the district court.
2. Write Claims that Recite a Specific Implementation of the Invention. Claim 1 of the KPN patent presented above recited a very specific implementation demonstrating the interaction between the claimed varying device and the generating device. Because of the specificity of the claims, the CAFC held that the invention was not abstract because the claims recited a concrete improvement of a computer security system. The title of the invention itself revealed the purpose of the intention: “Method and Devices of Data with Transmission Error Checking.” The specification also stated that the invention may be implemented with both hardware or software components plus the patent’s four claims also only recite devices; no method/process claims are recited despite the title. Compare with Claim 1 of the Solutran patent. Given the fact that the KPN patent application was written long before the Alice decision, one can’t help but marvel at the application drafter’s apparent prescience.
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Susan Dierenfeldt-Troy
