The "KSR Effect" Hits the E.D. Texas, Joint Infringement Liberally Applied

AdvanceMe Inc v. RapidPay LLC, (6:05-cv-424), August 14, 2007

AdvanceMe filed suit against multiple defendants, including RapidPay, alleging infringement of U.S. Patent No. 6,941,281 (“the ‘281 patent”). Claim 1 from the '281 patent reads as follows:

1. A method for automated payment, comprising:

at a merchant, accepting a customer identifier as payment from the customer and electronically forwarding information related to the payment to a computerized merchant processor;

at the computerized merchant processor, acquiring the information related to the payment from the merchant, authorizing and settling the payment, and forwarding at least a portion of the payment to a computerized payment receiver as payment of at least a portion of an obligation made by the merchant; and

at the computerized payment receiver, receiving the portion of the payment forwarded by the computerized merchant processor and applying that portion to the outstanding obligation made by the merchant to reduce such obligation.

INVALIDITY:

During litigation, a number of prior art references were put forward, and one of the references was found to anticipate. Nevertheless, Judge Davis went further in pointing out that the claims were obvious as well:

The patent-in suit, simply put, is a computerized method for securing debt with future credit card receivables. While the patent inventor, Barbara Johnson, implemented an aggressive marketing and business development program that brought this financing method to widespread use, she did not invent a new business method. Rather, Johnson built on long-established prior art, packaged the idea in a
new way, and marketed it aggressively.

There are multiple prior art references, not considered by the PTO when issuing the
patent, that render the patent invalid, especially in light of the Supreme Court’s recent ruling in KSR Int’l Co. v. Teleflex, Inc. In KSR, the Supreme Court opined “[w]hen a work is available in one field of endeavor, design incentives and other market forces can prompt variations of it, either in the same field or a different one. If a person of ordinary skill can implement a predictable variation, § 103 likely bars its patentability.” 127 S. Ct. 1727, 1740 (2007). The [prior art was] available in the field at the time of the purported invention. Johnson merely implemented a predictable variation of these existing methods in establishing her invention. While Johnson’s work exhibits excellent entrepreneurship, it does not entitle AdvanceMe to a legal monopoly on this method of providing financing to small businesses. Rather AdvanceMe must continue to compete in the marketplace for its share of the market, which will benefit the economy and consumers as a whole.

JOINT INFRINGEMENT

The claims in the '281 patent require actions by multiple parties (merchant, merchant processor, payment receiver). The defendants argued that, since none of them alone performed all the steps of the claims, they could not be liable for direct infringement. Taking the more liberal approach to joint infringement, the court stated that

A showing of “agency” or “working in concert” is not required in order to establish a
sufficient connection between the defendant and the third party or parties performing the patent method’s steps . . . The sufficient connection can be shown
through a contractual relationship between the defendant and the third party or parties performing the steps of the patented method.

* * *

Both Reach and MMT [co-defendants] directly infringe the asserted claims of the ‘281 patent. Under Reach and MMT’s programs, all of the elements of the patent claims are performed either by Reach or MMT, the merchants that enter into contracts with Reach or MMT, the merchant processors that enter into contracts with Reach or MMT, or agents or instrumentalities of these entities.

Interestingly, the opinion did not mention BMC v. PaymenTech, where the lower court dismissed BMC's joint-infringement claims. This case is currently before the CAFC (No. 2006-1503), and was recently noted in the PharmaStem case ("The viability and scope of that theory of liability is a subject of considerable debate.")

• Download the (54-page) opinion here (link)

• Michael Smith just tracked this case for his "Recent Rulings for Defendants" list, and notes: "For those of you keeping score, that drops the 2007 win rate for plaintiffs to 33% and the two-year win rate to 57%."

• David Goldin is the President & CEO of AmeriMerchant, who was one of the defendants in this case. David is a blogger as well, and used the blog to solicit prior art against the '281 patent(link), which apparently was a big help in the case (link).