Finnavations v. Payoneer: A Case Study Into a Broken Patent System

Editor’s Note: the author acted as a licensing advisor to Finnavations in the case discussed here.

If you innovate and invest more than $10,000 to obtain patent protection on your idea, do you trust a government-issued patent to be a valid one?

And if you believe you have a valid patent, would you trust that government’s judicial system to protect you from sanctions for believing in its validity?

These underlying assumptions provide the foundation to any system. If you purchase and obtain title to a car, stock, or real estate, you expect that title to be valid. And you expect not to be penalized for believing in that title’s validity.

For patents, it’s quite the opposite. It has become so commonplace for government-issued patents to be invalidated after issuance, we hardly bat an eye. But with the development of Section 101 law, the patent system has turned down a twisted path—one that sanctions patent holders for believing their patent to be valid.

The Finnavations Example

In Finnavations LLC v. Payoneer, Inc., the U.S. District court for the District of Delaware unfortunately advanced our patent system down this path. It invalidated the patent-at-issue under Section 101 and sanctioned Finnavations solely on the basis of filing the lawsuit.

Of course, this isn’t the first instance of a court sanctioning a patent holder for filing a lawsuit. But the court’s reasoning for doing so should give us pause to reflect where we currently stand with our patent system.

In the case, Finnavations filed a lawsuit for infringement of U.S. Patent 9,569,755 (‘755 Patent) against Payoneer, for its online Billing Service platform. The claim-at-issue was:

     1. A method for transferring payment information to a personal financial management program comprising:

invoking a financial assistant operating on a network device upon a determination of a transmission of transaction data to a commercial web server configured to conduct online financial transactions;

intercepting, by the financial assistant on the network device, the transaction data in a first data structure comprising a plurality of components of transaction data, the first data structure compatible with conducting an online transaction with the commercial web server;

copying, by the financial assistant on the network device, each component of the transaction data into a second data structure compatible with the personal financial management program, wherein the second data structure differs from the first data structure;

entering, by the financial assistant on the network device, additional transaction data not included in the transmitted transaction data into the second data structure including at least one of a category and remarks; and

transmitting, by the network device, the copied transaction data and the additional transaction data to the personal financial management program.

At first glance, Section 101 is the elephant in the room. The patent is entitled “Financial management system” and its field of invention “was designed to facilitate the record keeping associated with online transactions.“ This certainly falls under subject matter relevant to Section 101 under Alice, and Section 101 eligibility was front and center during the patent litigation.

Section 101 in the Prosecution History

But what stands out is that Section 101 was the primary and repeated issue during examination of the ‘755 patent application. In nearly five years of examination over the course of five office action rejections, the USPTO maintained numerous Section 101 eligibility rejections, forcing Finnavations to amend its claims numerous times to craft Section 101-eligible claims.

When the USPTO issued its first office action rejection in October 2014, Alice had been decided four months earlier. The USPTO’s sole rejection was over Section 101, in light of Alice. The examiner contended the claims were directed to the abstract idea of “performing a business payment transfer,” and “amount(s) to no more than using computer technology to provide a common knowledge transaction.” ‘755 Patent application, Office Action mailed Oct. 20, 2014, pg. 2.

Two months after the USPTO’s rejection, the Federal Circuit decided DDR Holdings, providing guidance regarding Section 101 eligibility. In March 2015, Finnavations responded to the rejection by submitting the DDR Holdings opinion, amending the claims, and arguing the claims were allowable in light of DDR Holdings. But in July 2015, the examiner maintained the Section 101 rejection.

Over the course of the next 11 months in four exchanges between Finnavations and the USPTO, the applicant further amended the claims to add a“financial assistant” element, arguing the element provided a specialized computer component, and the claims solved a problem unique to the realm of computer networks. But the USPTO maintained its Section 101 rejection.

After that point, the Federal Circuit issued Enfish, Bascom, and Rapid Litigation Management, all of which further clarified Section 101 eligibility requirements. Relying on the new Federal Circuit opinions, Finnavations amended the claims to limit when the financial assistant is invoked, the financial management program data structure was required to be different from the structure of the transaction data structure, and it entered additional data that wasn’t included in the transmitted transaction data (“Data Structure Amendment“).

Considering the claim amendments in light of the Federal Circuit law, the examiner determined the claims were Section 101 eligible:

Claims 1-21 have been viewed in light of Alice . . . and are not deemed invalidated by such. Also, it is noted that the United States Court of Appeals for the Federal Circuit court cases “Enfish,” “MCRO” and Bascom Global . . . have been reviewed in light of the claim language.  The claim language is viewed favorably in view of “Alice” and the other court cases. Applicant’s September 13, 2016 Amendment and REMARKS are convincing with regard to the “101” rejection.

Examiner Opinions Aren’t Relevant

Fast forward to the Finnavations patent litigation, in which the district court invalidated the ‘755 Patent on Section 101 and considered sanctioning Finnavations for filing the lawsuit. In its defense, Finnavations cited its reliance on the USPTO’s extensive consideration of Section 101 eligibility in light of Alice and other Federal Circuit case law, and noted that no new Federal Circuit law had issued that would impact the USPTO’s reasons for allowance.

The court refused to accept Finnavations‘ reliance on the USPTO’s analysis of Section 101 and Alice. The court reasoned that “[p]atent examiners are non-lawyers. An examiner’s opinion on the legal question of patent eligibility does not relieve a patent attorney from her obligation to make an independent assessment based on an evaluation of the relevant law.“ Finnavations Memorandum, pgs. 3-4, Mar. 18, 2019.

The court boldly stated, “I have rarely been more confident in the patent ineligibility of a set of claims or more confident in the unreasonableness of a Plaintiff‘s decision to sue on a patent.“ Finnavations Memorandum, pgs. 2-3, Mar. 18, 2019. The court held “[a]ny reasonable patent attorney with an understanding of §101 law could have predicted the outcome.“ Finnavations Memorandum, pg. 4, Mar. 18, 2019.

Time for Reflection

Thus, another patent invalidated on Section 101 and another plaintiff sanctioned for filing a lawsuit. Before we simply take a mental note and move on, I’d like for us to fully appreciate the implications of the court’s reasoning.

Following the court’s logic, a reasonable patent attorney would have known:

1. It is unreasonable to believe the USPTO issued a patent eligible under Section 101.
2. There is no reasonable basis to independently agree with the USPTO’s reasons for allowance and analysis of the claims in light of Federal Circuit case law.
3. There is no reasonable basis to independently believe the USPTO’s reasons for allowance regarding the Data Structure Amendment had any foundation in Federal Circuit case law.

A corollary to this logic: there is no reasonable basis to believe the USPTO was competently equipped to analyze and issue patents in light of Section 101.

In this case, believing the USPTO was competently equipped to analyze and issue patents over Section 101 was sanctionable.

The court’s logic and reasoning here should give us pause to reflect on where we currently stand with our patent system.

Has the Judiciary’s development of Section 101 case law cannibalized the legitimacy of the USPTO, the very government agency responsible for analyzing claims and issuing patents?

If the Judiciary’s development of Section 101 case law makes the USPTO illegitimate, has the Judiciary itself demonstrated competency in developing Section 101 case law?

Or is it finally time for the Legislative branch to intervene and retake the reins on Section 101, and reestablish integrity in our U.S. patent system?

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