SDNY Finds Patent for Processing Financial Transaction Data Invalid Under 101

Last week, the U.S. District Court for the Southern District of New York granted Block, Inc.’s Motion to Dismiss a complaint brought by AuthWallet, LLC against it for failure to state a claim. The district court found that the claims of AuthWallet’s patent were invalid because they claimed patent ineligible subject matter under 35 U.S.C. § 101.

AuthWallet’s U.S. Patent No. 9,292,852 relates to systems and methods for processing financial transaction data. Block provides online platforms, products, and services that facilitate financial transaction data. Specifically, Block offers mobile payment options that provide a means for customers to earn and redeem rewards for multiple vendors.

In its complaint, AuthWallet alleged that Block’s payment platforms infringe on one or more of claims of the ’852 patent, either literally or under the doctrine of equivalents. Specifically, AuthWallet alleged that Block put the inventions claimed by the ’852 patent into service (i.e., used them) and, therefore, Block benefited financially and commercially.

The doctrine of equivalents states that “a product or process that does not literally infringe upon the express terms of a patent claim may nonetheless be found to infringe if there is ‘equivalence’ between the elements of the accused product or process and the claimed elements of the patented invention.”

In its motion to dismiss, Block argued that the claims of the ’852 patent are ineligible for protection under Section 101 because they are directed to the abstract concept of processing discounted payments during sales transactions and the claims implement this abstract idea using computer technology.  The district court applied the Supreme Court’s two-part test for determining whether an idea is unpatentable as a law of nature, natural phenomenon, or abstract idea (the “Alice test”).

Alice Step One: It’s Abstract

Under step one, courts determine whether the claims at issue are directed to a patent-ineligible concept, such as an abstract idea.

The district court held the claims of the ’852 patent were ineligible at Alice step one because managing the processing of online financial transaction data using authorization requests and conferring discounts and benefits to the consumer for future purchases are abstract ideas for the purposes of Section 101. The service of providing customers a discounted transaction has been “common among brick-and-mortar retailers” and in the past, retailers have provided financial incentives, such as coupons, to customers during purchase. The court further found that the ’852 patent simply describes that this conventional business practice may be effected by technology rather than by hand.

The court compared the ’852 patent to patents in In re Elbaum and Universal Secure Registry LLC v. Apple Inc. and found claims in the ’852 patent to describe sales transaction activity that is “ordinarily performed” in the stream of commerce. Specifically, the claims recite a secure transaction method where consumers can make credit card payments without physically presenting their cards and preventing the credit card information from being relayed to the retailer. For example, the patents in Universal Secure Registry and the ’852 patent both mitigate the online credit card transactional security concerns by having an intermediary manage and transmit authentication requests, which are processes that the Federal Circuit found to be “conventional” and “generic.”

The court added that its conclusion that the ’852 patent speaks to an abstract idea is not undermined by the fact that the patent seeks to solve security and transaction fee issues in non-physical credit card transactions. The narrow context cannot save it from the conclusion that processing discounted payments in sales transactions is an abstract idea.

Alice Step Two: No Inventive Concept

The second step of the Alice test requires a court to ask whether there is an inventive concept—i.e., an element or combination of elements that is sufficient to ensure that the patent in practice amounts to significantly more than a patent upon the ineligible concept itself. A claim that recites an abstract idea must include additional features to ensure that the claim is more than a drafting effort designed to monopolize the abstract idea. The district court found the ’852 patent did not pass this step.

Block argued that representative claim 1 “merely automates the longstanding business practice of discounted payment transactions using conventional, generic computer technology.” The district court agreed and pointed out that the claims of the ’852 patent simply use two-step authentication processes and data storage mechanisms to manage online payment transactions with discounts. AuthWallet failed to recite an inventive concept that transforms the abstract idea of processing discounts on payment transactions into a patent-eligible application.

Again, the district court referred to past cases to reach its conclusion. In In re Elbaum, the court found that the patent—which disclosed a method for allowing an internet seller to provide a retail location with a code that contains information about a particular product or service—did not recite any incentive concept. There, the patent recited “generic computer functions, which . . . are carried out by conventional computer components.”

Additionally, the online credit card mechanism patent in Universal Secure Registry also failed to supply an inventive concept because “verifying the identity of a user to facilitate a transaction is a fundamental economic practice.”

Here, the court noted that the ’852 patent’s two-factor authentication innovations not only concerned generic computer functions to be carried out by conventional computer components to produce discounted payment transactions, but also involved authorizing and facilitating transactions, which are fundamental economic practices.

AuthWallet argued that the ’852 patent claims overcome a specific problem in electronic commerce since they facilitate purchases from an online vendor where the credit card is not physically presented to the vendor, ultimately allowing users to process a secure credit card transaction and reducing instances of fraud. To support its argument, AuthWallet cited Messaging Gateway Sols., LLC v. Amdocs, Inc., but the district court ultimately distinguished the present facts from Amdocs.

In Amdocs, the court assessed two patents that outlined a “method that enables a device that ordinarily cannot send a message to a different device to do so,” which the court found to be “essentially the same as [the abstract idea of] a translator assisting two people who speak different languages to communicate with each other.” However, because the patents (1) contained solutions to problems unique between text-message communications between a mobile device and a computer, and (2) were rooted in computer technology to overcome a problem arising in computer networks, the court found that the patents satisfied Alice step two.

On the other hand, the district court acknowledged that problems of online fraud and consumer authentication are not unique to online discounted sales. Brick-and-mortar retailers who provide for coupons and other discounted pricing schemes have long faced fraud and verification issues, and non-commercial transactions across the internet and among other computer interactions readily involve issues of fraud and misrepresentation.

Because the patent’s two-factor authentication and reduced fraud innovations speak solely to the abstract idea concerning discounted payment transactions under Alice step one, the district court found that the claims of the ’852 patent failed Alice step two and thus found dismissal was appropriate.

The team representing Block, Inc. included Daniel Block, Chandrika Vira, Michael Specht and William Milliken of Sterne, Kessler, Goldstein & Fox.

 

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