Advanced Marketing Systems, LLC v. CVS Pharmacy (E.D. Tex. 2016)

By Michael Borella --

In February 2015, Advanced Marketing Systems (AMS) sued a number of defendants, alleging infringement of various claims of U.S. Patent Nos. 8,219,445, 8,370,199, and 8,538,805.  The defendants filed a motion for judgment on the pleadings, arguing that the case should be dismissed because the asserted claims are directed to non-statutory subject matter under 35 U.S.C. § 101.

Claim 1 of the '805 patent recites:

A data processing system for tracking and processing a plurality of in-store discounts to potential purchasers of plural products during the checkout process, wherein said discounts are each associated with a specific one of said plural products, said system comprising:
    a discount vehicle, characterized by two or more of said discounts, including descriptive material to provide information at least identifying the products and their associated discounts;
    a customer account associated with a customer identification code, the customer account comprising two or more of said discounts of the discount vehicle selected by a customer to be associated with the customer account, the customer account being associated with a select code that permits tracking of said customer account during checkout, said select code uniquely identifying all the discounts for all of the plural products associated with the customer account;
    wherein the customer identification code is inputted by the customer to access the customer account;
    a checkout processing terminal including computer based tracking of individual purchasers' purchased products and the prices thereof, wherein said processing terminal includes a device for receiving the select code during checkout; and
    a data processor attached to said checkout terminal for receiving information regarding transactions associated with checkout, selected products and the discounts associated with the select code forming a part of the transactions, and processing said discounts in accord with said select code;
    wherein said data processor selectively deactivates the select code for only particular discounts, of the plurality of discounts, associated with the purchased products by redemption of the select code associated with the customer account such that the select code remains active for future use with yet unused ones of the plurality of discounts associated with said plural products, said data processor being further connected to memory for storing data associated with said transaction.

Claim 28 of the '199 patent is similar in terms of structure and content.  Further, claim 9 of the '445 patent and claim 15 of the '199 are similar in content, but differ in structure.  Of note are the preambles of these latter two claims, which recite:

A distributed discount vehicle for use with a data processing system for tracking and processing a plurality of in-store discounts to potential purchasers of plural products during the checkout process, wherein said discounts are each associated with a specific one of said plural products, said discount vehicle comprising . . .

In order to rule on the motion, the Court applied the now-familiar patent-eligibility test from Alice Corp. v. CLS Bank Int'l.  First, one must determine whether the claim at hand is directed to a judicially-excluded law of nature, a natural phenomenon, or an abstract idea.  If so, then one must further determine whether any element, or combination of elements, in the claim is sufficient to ensure that the claim amounts to something more than the judicial exception.  Notably, generic computer implementation of an otherwise abstract process does not qualify as "something more."

The defendants asserted that the claims were directed to the abstract idea of offering, tracking, and processing discounts, a "longstanding commercial practice."  According to the defendants, the claimed features "constitute nothing more than the idea of tracking discounts after they are offered to consumers and processing them once they have been redeemed."  The defendants further contended that "inclusion of elements such as a customer account, a customer identification code, a checkout processing terminal, a data processor, and memory in the claims does not change the basic character of the subject matter of the claims because each function performed by these components is purely conventional."  Thus, in the defendant's view, the claimed invention was merely a mental process that "can be performed by a human using pencil and paper."  To support these positions, defendants alleged that the claimed discount vehicle was "merely an insert in a newspaper or a magazine."

AMS responded by arguing that the "underlying factual disputes concerning the scope of the claim language make a decision on the issue of patentable subject matter inappropriate at this stage in the case."  AMS disagreed that the discount vehicle was limited to printed information, and asserted that the data processor was "a non-generic, specifically programmed system that selectively deactivates certain e-coupons redeemed by a customer at checkout."  Finally, AMS took the position that selectively applying discounts as claimed was an inventive concept that satisfies the second prong of Alice.

The Court considered whether it was appropriate to dismiss this case on the pleadings, and noted that "the issue of patentable subject matter requires a legal analysis that can -- and often does -- contain underlying factual issues."  Further, "where the parties dispute the scope and meaning of the asserted claims as they do here, application of the principles governing a § 101 analysis is not a straightforward exercise."  Ultimately, the Court found several reasons why the case should not be dismissed at this early stage.

First, the defendants did not establish "an absence of fact and claim construction issues such that the only plausible reading of the asserted claims is one of patent ineligibility."   Instead, for two terms, "discount vehicle" and "selectively activated," there was a material factual dispute between the parties.  Particularly, the defendants' position that the claims were invalid required adopting the defendant's interpretation of these claim terms, which was at odds with the proposed construction offered by AMS.

Second, the Court found that a reading of the claims did not clearly show that they recite a mere abstraction.  Instead, the Court wrote that "discount vehicle claims, for example, include physical structures such as a discount vehicle with information identifying products and their associated discounts, and a select code that can be selectively deactivated as to certain discounts, while remaining active for future use as to others."  Further, "[t]he data processing system claims recite, in part, a checkout processing terminal with computer based tracking of purchased products and a device for receiving the select code during checkout."  The presence of such physical structures resulted in the Court concluding that "it is impossible to make a final determination before claim construction that the claims are simply a drafting effort designed to monopolize an abstract idea, rather than a patent-eligible application of the idea."

Third, the parties' dispute over whether the hardware recited by the claims was conventional and generic or specifically programmed, and whether the features associated with the claimed selective deactivation improved upon the prior art, also weighed against a decision on the pleadings.  As a result, the Court concluded that it would deny the defendants' motion without prejudice, thus leaving the defendants open to filing a similar motion after claim construction.

Standing alone, this case is yet another illustration of how the Alice test could go either way for a given set of claims.  When viewed in light of claims found patent-ineligible by the Federal Circuit and other district courts, AMS's patents could have been easily invalidated on the pleadings.  Particularly, other courts have found financially-oriented transactions to incorporate abstract ideas, and hardware components similar to those at issue here to be merely generic.

But, this decision takes on a special character when viewed along with Voxathon LLC v. Alpine Electronics of America, Inc., decided by the same judge just a few days earlier.  In Voxathon, the Court held that claim construction was unnecessary before dismissal on the pleadings.  The rub is that AMS's claims appear to be at least as abstract as those in Voxathon, and recite no more specialized hardware components.  Thus, one could argue that either this case, Voxathon, or both were wrongly decided.  At the very least, the outcomes appear to be inconsistent.

Having said that, the rationale for this apparent discrepancy may be as simple as AMS's arguments being more compelling than those of Voxathon, or that in this case the judge adopted the recommendation of a magistrate, whereas in Voxathon the judge wrote the substantive opinion.  Nonetheless, when viewed on their faces, the two outcomes further illustrate the lack of predictability that pervades the patent system post-Alice.

Comments

[Skeptical]

The writing of the law that is Alice can be - and should be - seen as void for vagueness.

(That's a translation of the phrase used "lack of certainty" into a bit more impactful legal terminology)

If the Court wants to play the role of scrivener (already a separation of powers issue), then the results of that scrivining STILL must pass muster on other constitutional protections. And while void for vagueness is often presented for criminal matters, the protection does apply in the civil realm when such things as property are affected.

[EG]

"Nonetheless, when viewed on their faces, the two outcomes further illustrate the lack of predictability that pervades the patent system post-Alice."

Hey Michael,

How very true. Continuing proof that the subjective Alice test is utterly broken.

[Martin Snyder]

I agree completely that the Alice test, as currently employed, is an utter crapshoot- which means both inventors and accused infringers are being denied justice.

These defendants are now on the hook for hundreds of thousands or a million-plus dollars in fees before the CAFC invalidates the patent on Alice grounds.

At the very least, as currently operated, a 12(b)6 loss on 101 grounds should get an automatic interlocutory appeal.

This situation is intolerable.

[EG]

"At the very least, as currently operated, a 12(b)6 loss on 101 grounds should get an automatic interlocutory appeal."

Martin,

There is no way that the courts will grant such "automatic" interlocutory appeals. Grants of interlocutory appeals are rare because it upsets the normal litigation process of having all issues resolved at the trial level before allowing appeal. Changing that normal litigation process would require at least a change in the Federal Rules of Civil Procedure which has about a "snowball's chance in hell" of happening.

[Martin Snyder]

EG, I agree they are rare and should be.

However, when you have a single appeals court with specialized expertise in a single, common question that is not being reliably adjudicated in the lower courts, it's just a massive waste of resources (i.e injustice) to litigate all the way back to the same point.

If we had a working Congress, it would be a single line of legislation. "Subject matter eligibility findings of district courts shall be immediately appealable to the CAFC"

That way, the question is settled and the litigants know where they stand millions of dollars sooner.