The Court of Appeals for the Federal Circuit held that patents directed to the use of bank cards, rather than specially issued magnetic stripped card-tickets, in open-payment fare systems for mass transit networks are patent ineligible subject matter under 35 U.S.C. § 101. Smart Systems Innovations, LLC v. Chicago Transit Authority, Case No. 2016-1233 (Fed. Cir. Oct. 18, 2017) (Available Here).
Defendants filed a motion for judgment on the pleadings, asserting that various claims of the Patents-in-Suit are patent ineligible under 35 U.S.C. § 101. The Supreme Court’s decision in Alice Corp. Pty Ltd. v. CLS Bank International provides the framework through which the Courts assess patent eligibility under § 101. See 134 S. Ct. 2347, 2354–55.
A patent claim falls outside § 101 where (1) it is “directed to” a patent-ineligible concept, i.e., a law of nature, natural phenomenon, or abstract idea, and (2) if so, the particular elements of the claim, considered “both individually and ‘as an ordered combination,’” do not add enough to “‘transform the nature of the claim’ into a patent-eligible application.” Elec. Power Grp., LLC v. Alstom S.A., 830 F.3d 1350, 1353 Fed. Cir. 2016) (quoting Alice, 134 S. Ct. at 2355).
Patentee SSI sought overcome common mass transit ticket problems with “An open-payment fare system allows riders to conveniently and quickly access mass transit by using existing bankcards,” such as debit and credit cards, thereby “eliminat[ing] the need for, and added operational cost of, dedicated fare-cards,” paper tickets, and tokens. See’003 patent, Abstract.
An Exemplary Claim stated : A method for validating entry into a first transit system using a bankcard terminal, the method comprising: [a] downloading, from a processing system associated with a set of transit systems including the first transit system, a set of bankcard records comprising, for each bankcard record in the set, an identifier of a bankcard previously registered with the processing system, and wherein the set of bankcard records identifies bankcards from a plurality of issuers; [b] receiving, from a bankcard reader, bankcard data comprising data from a bankcard currently presented by a holder of the bankcard, wherein the bankcard comprises one of a credit card and a debit card; [c] determining an identifier based on at least part of the bankcard data from the currently presented bankcard; [d] determining whether the currently presented bankcard is contained in the set of bankcard records; [e] verifying the currently presented bankcard with a bankcard verification system, if the bankcard was not contained in the set of bankcard records; and [f] denying access, if the act of verifying the currently presented bankcard with the bankcard verification system results in a determination of an invalid bankcard.
Under Alice Step One, “claims are considered in their entirety to ascertain whether their character as a whole is directed to excluded subject matter.” Internet Patents Corp. v. Active Network, Inc., 790 F.3d 1343, 1346 (Fed. Cir. 2015); see McRO, Inc. v. Bandai Namco Games Am. Inc., 837 F.3d 1299, 1313 (Fed. Cir. 2016).
The District Court held that the claims only cover an abstract concept: paying for a subway or bus ride with a credit card when reduced to their core, claims directed to the performance of certain financial transactions and paying a fare is a financial transaction. This financial transaction be categorized as involving abstract ideas.
SSI’s arguments were unavailing. The Claims involve acquiring identification data from a bankcard, using the data to verify the validity of the bankcard, and denying access to a transit system if the bankcard is invalid.
The Claims “are not directed to a new type of bankcard, turnstile, or database, nor do the claims provide a method for processing data that improves existing technological processes. Rather, the claims are directed to the collection, storage, and recognition of data.”
The question in these cases is “whether the focus of the claims is on the specific asserted improvement in computer capabilities” or whether “computers are invoked merely as a tool.”
The claims in the patent in suit recite the collection of financial data from third parties, the storing of that financial data, linking proffered credit cards to the financial data, and allowing access to a transit system based on the financial data. The claims are not directed to a combined order of specific rules that improve any technological process, but rather invoke computers in the collection and arrangement of data.
The Second Step of the § 101 analysis requires the Court to determine whether the claim elements, when viewed individually and as an ordered combination, contain “an inventive concept sufficient to transform the claimed abstract idea into a patent-eligible application.” Alice, 134 S. Ct. at 2357. A claim contains an inventive concept if it “include[s] additional features” that are more than “well-understood, routine, conventional activities.” Id. at 2357, 2359.
SSI argues that the Claims “do not preempt any field or allegedly abstract idea.” Per the Court: “However, when a patent’s claims ‘disclose patent [- ] ineligible subject matter[,] . . . preemption concerns are fully addressed and made moot.’ Ariosa Diagnostics, Inc. v. Sequenom, Inc., 788 F.3d 1371, 1379 (Fed. Cir. 2015).”