U.S. Bancorp v. Solutran, Inc. (PTAB 2014)

By Michael Borella --

In the weeks since the Alice Corp. v. CLS Bank Supreme Court decision, we have been watching patents and applications fall left and right due to use of that case's more stringent test regarding patent-eligibility.  This test requires that, for purposes of determining whether claims involve statutory subject matter under 35 U.S.C. § 101, one must apply a two prong analysis.  The first prong is to determine whether the claims are directed to a patent-ineligible law of nature, natural phenomenon, or abstract idea.  If so, the second prong is to determine whether any additional claim elements transform the nature of the claim into a patent-eligible application that amounts to significantly more than the ineligible concept itself.

While not explicitly targeting software and business methods, in reality the Court has made these types of patents more difficult to obtain.  The U.S. district courts, the Federal Circuit, and the U.S. Patent and Trademark Office have been applying the CLS Bank test aggressively.  In the vast majority of cases, the claims under consideration are found to be patent-ineligible.

Consequently, one of the difficulties we have when trying to draft or amend claims so that they withstand scrutiny is that there are very few examples of claims that are patent-eligible under CLS Bank.  All Federal Circuit case law interpreting § 101 prior to June 19 of this year (the date of the CLS Bank decision), is suspect.  Thus, when a post-CLS Bank case that applies the CLS Bank test finds claims patent-eligible, that case is worthy of attention.

U.S. Bancorp v. Solutran, Inc. was a covered business method review before the Office's Patent Trial and Appeal Board.  While this case does not carry the weight of precedent, it does provide a glimpse at what some of the Office's administrative patent judges may be thinking regarding § 101.

U.S. Bancorp petitioned for the review in order to challenge the patentability of claims 1-6 of U.S. Patent No. 8,311,945, owned by Solutran.  As an example, claim 1 of the '945 patent recites:

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 said check, associating said digital image with 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 Board first verified that this patent is ripe for covered business method review, in that the petitioner had been sued for infringement of the patent, the claims for which review had been requested were directed to a financial product or service, and that the challenged patent was not technical in nature.  The last part of this test as applied by the Board is notable.  The Board sought to determine "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 answering this question in the negative, the Board wrote that the claimed features of "checks, digital image scanners, and computers were known technologies in the prior art before the effective filing date of the '945 patent in 2006," and that "no limitation of claim 1 . . . represents a technological feature that is novel or unobvious over the prior art."  With that threshold test out of the way, the Board initiated the review.

Among other points, U.S. Bancorp contended that "[o]ther than the claimed idea of a non-merchant entity performing check scanning, claim 1 includes nothing but mental process steps, insignificant extra-solution activity, and conventional computer hardware components for performing basic computer  functions."  The Board responded by indicating that "[i]n determining whether a method or process claim recites an abstract idea, we must examine the claim as a whole."  Thus, the Board found U.S. Bancorp's arguments unpersuasive because "they are directed to each method step individually without accounting sufficiently for the claims as a whole."

Instead, when conducting the first prong of the CLS Bank test, the Board found that the claim 1 was directed to "a method of processing paper checks, which is more akin to a physical process than an abstract idea."  Thus, despite claim 1 reciting "some fundamental economic practices . . . such as crediting an account for a merchant," the additional features of "receiving said paper checks and scanning said checks with a digital scanner and comparing by a computer said digital images . . . are not fundamental economic practices, mathematical algorithms, or basic tools of scientific and technological work."

Noting that "application of the Supreme Court's test cannot disembody such recitations from the claim viewed as a whole," the Board held that claim 1 was directed to processing paper checks rather than an abstract idea.  Thus, the Board concluded that U.S. Bancorp "has not demonstrated that it is more likely than not that challenged claims 1-6 are unpatentable under 35 U.S.C. § 101."  (Ultimately, the Board ordered a covered business method review of the claims because it also concluded that the claims were more likely than not obvious over applicant admitted prior art and a secondary reference.)

The procedural stance of this case is unusual.  It was before the Patent Trial and Appeal Board rather than a federal court.  Also, this opinion only considered whether it is more likely than not that the claims would eventually be found to be unpatentable.  Nonetheless, the Board's application of the first prong from CLS Bank is informative, and provides patent holders with a tool than can be used to rebut contentions of patent-ineligibility -- namely, an example of a business method patent that is not directed to an abstract idea.

Since the Board decided that the claims were not directed to an abstract idea, it never reached the issue of whether the claims recite "significantly more."  A case that illustrates how to apply the second prong would be welcome.

U.S. Bancorp v. Solutran, Inc., Case No. CBM2014-00076, 2014 WL 3943913 (PTAB Aug. 7, 2014)

Comments

[EG]

"[o]ne of the difficulties we have when trying to draft or amend claims so that they withstand scrutiny is that there are very few examples of claims that are patent-eligible under CLS Bank."

Mike,

It's not "one of the difficulties," it's major difficulty with Alice which remains, in my opinion, a travesty. How the Royal Nine can say in footnote 3 of Alice that they are compliant with Diehr's requirement that the claim be judged "as a whole" defies all logic. (I said the same thing about Mayo.) In addition, not only will the Royal Nine not define for us "mere mortals" what they mean by an "abstract idea," but how, pray tell, do you tell a client what "something more" means, given that the Royal Nine won't even define that?

I'll at least give the PTAB credit for being brave enough to at least tell us "mere mortals" what isn't an "abstract idea," but I wouldn't hold my breath that this decision will survive an appeal to the Federal Circuit; so far since Alice , they're just as bad as the Royal Nine on this issue as shown by Planet Bingo and Buysafe. Only Congress can straighten out this mess, and tell the Royal Nine that they've overreached their constitutional authority to interpret, not make, law, including telling them to "cease and desist" from engrafting onto the patent statutes "exceptions" and "requirements" that are not explicitly there, 35 USC 101 being a prime example of this overreach.

[Skeptical]

EG,

Note that Dr. Noonan and I have discussed this and while we both agree that we must continue to represent our clients, we have not arrived at the same page as to the IMMEDIATE effect - and visceral need for a more permanent solution - related to the inadequate direction provided by a Court that insists on writing (implicitly and/or explicitly) patent law and changing the rules of the game years after applications are submitted and incapable of responding to the changing rules.

I think the first order of business for the Court is to clarify whether or not its changes are statutory or constitutional in nature.

If statutory, then Congress can act to solidly clarify.

If constitutional, then the Court should act appropriately to notify Congress of the explicit constitutional shortcoming so that the appropriate clarity can be obtained.

EITHER WAY, we have a serious separation of powers issue that should not be ignored. The Court is acting so as to keep its fingers in the pie of setting patent policy instead of providing decisive and helpful (to the party participants, the patent community at large, and to the entire nation) guidance.

I have seen calls on other blogs to NOT discuss the seriousness of the constitutional question on the Court actions, and find it rather unbelievable that some do not want to question the seriousness of the situation. Have these people not studied US jurisprudence and do they not realize that the pinnacle case on separation of powers dealt with a far more trivial case of a simple appointment of an undelivered commission? (See Marbury v. Madison) While that case dealt with a power struggle between the Judiciary and the Executive, we have here a much more important (and much longer fought) battle between the Judiciary and the Legislature.

Appellate jurisdiction limitation is one of the powers of the Legislature, and patent review - especially when that review is based on policy - is NOT a matter of original jurisdiction of the Supreme Court.

There are some very real and very powerful options not yet explored in detail.

However, these options do require a Congress willing not only to hear and recognize the power struggle for what it is, but to care enough to act in a unified manner above the art-specific divide-and-conquer rhetoric that has flooded the political stage.

Will that happen? Sadly, I remain...

[Richard Stern]

Michael, would it be possible for Patentdocs to invite counsel for US Bancorp to comment in reply to your comments?

[Mike Borella]

Richard,

Such comments would be informative, but usually counsel will refrain from discussing ongoing cases, for purposes of maintaining privilege, as well as other concerns.

Mike

[EG]

"I have seen calls on other blogs to NOT discuss the seriousness of the constitutional question on the Court actions, and find it rather unbelievable that some do not want to question the seriousness of the situation."

Skeptical,

I've seen those comments as well, and like you, find it astounding that the Royal Nine cannot be criticized for constitutional overreach. No one is above the law, and that includes the Royal Nine. And as you noted, the appellate review by the Royal Nine (other than that specified in the Constitution) can be limited by Congress, something even earlier Royal Nines (see Ex parte McCardle) recognized Congress can rightfully do.

[Skeptical]

EG,

Thanks for the case cite. A quick synopsis can be found at: http://www.casebriefs.com/blog/law/constitutional-law/constitutional-law-keyed-to-chemerinsky/the-federal-judicial-power/ex-parte-mccardle/

[Skeptical]

An interesting read - especially in relation to the clarification I noted above (statutory or constitutional OR OTHER basis):

http://www.jdsupra.com/legalnews/are-the-supreme-courts-exceptions-to-pa-71899/

[Dan Swirsky]

So, the could-do-it-manually-but-doing-it-on-a-computer claims in Diamond v. Diehr are patentable (even according to Alice v. CLS Bank) because their operations are performed with respect to rubber, and the could-do-it-manually-but-doing-it-on-a-computer claims in U.S. Bancorp v. Solutran are patentable because their operations are performed with respect to paper. Thus, perhaps SCOTUS and the PTAB are saying that a claim is not directed to an abstract idea if it requires interaction with an object having physical properties. Conversely, a claim IS directed to an abstract idea if does not require interaction with an object having physical properties, such as where it operates on information only. Perhaps data compression methods would also be patentable as they inherently affect objects having physical properties (i.e., data storage devices), whereas cryptography methods would not be patentable, however useful they may be.

[Mike Borella]

Dan,

I think you are on to it - if there is some sort of analog-to-digital (or vice versa) interaction in a claim, that may be a saving grace.

Mike