By Michael Borella --
On April 12, 2013, Segin Software sued Stewart Title and several other parties for infringement of U.S. Patent No. 8,165,939. The defendants filed a petition with the U.S. Patent and Trademark Office requesting post-grant review of claims 1-10 of the '939 patent under the Office's transitional program for covered business method patents. Among other deficiencies, Stewart Title alleged that the '939 patent failed to meet the patentable subject matter requirements of 35 U.S.C. § 101.
This is the Patent Trial and Appeal Board's first application of the Supreme Court's recent Alice Corp. v. CLS Bank Int'l decision. The posture of this decision is important -- the Board is not making a ruling about the validity of the '939 patent. Instead, the Board is determining whether the '939 patent qualifies for post-grant review under the covered business method program. Still, this decision provides a window into the Board's thinking about the CLS Bank case and its application.
Claim 1 of the '939 patent, the sole independent claim at issue, recites:
1. A method of tracking and verifying in real time financial transactions defined at a real estate settlement, the steps comprising:
a) storing, in a database of a settlement financial tracking and verifying computer system, data that includes at least data enumerated on a completed HUD-1 (Housing and Urban Development-1) form associated with a closing upon a piece of real property, wherein said settlement financial tracking and verifying computer system operates automatically and in real time;
b) selecting from said database, by said settlement financial tracking and verifying computer system, data defining at least one anticipated financial transaction enumerated on said completed HUD-1 form, whereby said anticipated financial transaction represents a transfer of funds to be made;
c) automatically initiating in real time a fund transferring action defined by said at least one anticipated transaction selected from the group: disbursing funds, and expecting payments;
d) storing data representative of said initiated fund transferring action in said database as an initiated fund transferring action;
e) automatically tracking in real time each of said initiated fund transferring actions;
f) detecting, by said settlement financial tracking and verifying computer system, completion of each of said initiated fund transferring actions whereby a tracked result is generated;
g) storing in said database, each of said tracked results;
h) automatically comparing in real time said tracked result with said data representative of an associated one of said at least one anticipated transaction stored in said database; and
i) automatically alerting in real time a user of said settlement financial tracking and verifying computer system selected from the group comprising a bank, a settlement agent, an attorney, and an auditor when said tracked result differs from said data representative of an associated one of said at least one anticipated transaction.
In order for a covered business method post-grant review to take place, the Office must determine that "the information presented in the petition . . . if such information is not rebutted, would demonstrate that it is more likely than not that at least 1 of the claims challenged in the petition is unpatentable." Further, the patent being challenged in the post-grant review (i) must have been asserted against the petitioner in an infringement action, (ii) must be directed to a business method, and (iii) must not be directed to a technological innovation.
Clearly, the first prong of this test is met.
In considering the second prong, the Board looked to the definition of a business method patent in the America Invents Act -- "a patent that claims a method or corresponding apparatus for performing data processing or other operations used in the practice, administration, or management of a financial product or service." The Board quickly concluded that the '939 patent, as recited in the preamble of claim 1, was expressly directed to "a method of tracking and verifying in real time financial transactions defined at a real estate settlement." Along with other references to financial transactions in the body of claim 1, this was enough to convince the Board that the second prong was met.
With respect to the third prong, the Board considered "whether the claimed subject matter as a whole recites a technological feature that is novel and unobvious over the prior art; and solves a technical problem using a technical solution." In doing so, the Board noted that "mere recitation of known technologies, such as computer hardware, communication or computer networks, software, memory, computer-readable storage medium," "reciting the use of known prior art technology to accomplish a process or method, even if that process or method is novel and nonobvious," and "combining prior art structures to achieve the normal, expected, or predictable result of that combination" was not enough to avoid covered business method classification.
The hardware that claim 1 recites is limited to a "settlement financial tracking and verifying computer system" and a "database." These, according to the Board were known technologies, and the invention itself was a financial product or service. Thus, the Board concluded that the goals of the claimed invention were not technical in nature and recitation of the general-purpose hardware was insufficient to characterize the invention as a technical solution to a technical problem.
Once the propriety of the covered business method program was established for the '939 patent, the Board moved on to determine whether it is more likely than not that at least one of claims 1-10 is unpatentable. In doing so, the Board focused on claim 1, and considered Stewart Title's challenges under 35 U.S.C. §§ 101 and 112.
For the § 101 challenge, the Board applied the two-step patent-eligibility test from Mayo Collaborative Servs. v. Prometheus Labs., Inc. as reiterated in CLS Bank. This test instructs one to (i) determine whether the claims at issue are directed to a patent-ineligible abstract idea, natural phenomena, or law of nature, and (ii) if this is the case, then consider the elements of the claims individually and as an ordered combination to determine whether there are additional elements that transform the nature of the claim into a patent-eligible application.
For the first step, the Board found the claim directed to "the concept of tracking and verifying the progress of financial transactions between parties to a real estate settlement," and that there was no meaningful distinction this concept and the intermediated settlement that was deemed abstract in CLS Bank.
To justify this conclusion, the Board looked to several statements made in the specification of the '939 patent, including:
• "real property settlement involves many manual steps";
• "tools (including software or other computer based tools) exist to help perform individual settlement steps, [but] many manual operations such as data entry leave numerous possibilities for innocent error";
• "provid[ing] an integrated method . . . for processing all financial details of a real estate settlement or other similar transactions [without] the need for multiple, stand-alone software tools or systems to accomplish most tasks associated with real estate settlement."
Based on these statements, the Board was "persuaded that the concept of tracking and verifying the progress of financial transactions between parties to a real estate settlement . . . is a fundamental economic practice long prevalent in our system of commerce."
Having settled that, the Board turned to the second step in the analysis, which it characterized as determining "whether the claims include an inventive concept, i.e., an element or combination of elements sufficient to ensure that the patent in practice amounts to significantly more than a patent on the abstract idea itself."
Taking guidance from CLS Bank, the Board noted that "that the mere recitation of a generic computer" is insufficient to achieve this goal. In contrast, the Board also noted that in Diamond v. Diehr, the use of a mathematical relationship or algorithm to improve an industrial or technological process could transform an abstract idea into an inventive application.
Segin Software contended that the recitation of the computer in claim 1 was "integral to the claims" and served to "meaningfully limit the scope of the claims." The Board, however, was not convinced. Instead, it looked to substantively the same statements in the specification quoted above to conclude that "software and other computer-based tools were available to help perform" aspects of the claim, and that these functions were "well-understood, routine, conventional activities."
Further, in order for the computer to be "integral to the claimed invention, it must facilitate the process in a way that a person making calculations or computations could not." The Board acknowledged that implementing the claimed steps on a computer "allows them to be performed faster and more efficiently, with fewer opportunities for fraud or innocent error, than if the steps were performed manually or piecemeal." But, it was still possible for a person to perform the claimed steps without error, and "simply implementing an abstract concept faster and more efficiently on a computer is not sufficient to transform a patent-ineligible claim into a patent-eligible one."
Finding no limitations that narrowed the claimed invention to sufficiently less than that of the abstract idea incorporated therein, the Board concluded that Stewart Title had established "that it is more likely than not that the claims challenged in the petition are unpatentable under 35 U.S.C. § 101."